Finch Company has two divisions, A and B. Division A manufactures 6,500 units of
ID: 2528519 • Letter: F
Question
Finch Company has two divisions, A and B. Division A manufactures 6,500 units of product per month. The cost per unit is calculated as follows.
Division B uses the product created by Division A. No outside market for Division A’s product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a price of at least $27.50 per unit. The manager of Division B argues that the same product can be purchased from another company for $19.60 per unit and requests permission to do so.
Required
a-1. How much would the division gain or lose if Division B were to purchase the product from the outside company for $19.60 per unit? (Round your answer to 2 decimal places.)
a-2. Is it in the best interest of Finch Company for Division B to purchase the product from an outside company? Yes or no?
Variable costs $ 7.20 Fixed costs 20.30 Total cost $ 27.50Explanation / Answer
a-1) Division B Gain = (27.5 - 19.60)*6500 = $51,350
a-2) No, it is not in the best interest of Finch Company for Division B to purchase the product from an outside company. In this way the company loses (19.6-7.2)*6500 = $80,600 as a whole.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.