The Engine Division of the Taylor Corporation sells small engines to the outside

Question

The Engine Division of the Taylor Corporation sells small engines to the outside market at a selling price of $143 per engine. The Engine Division is currently operating at a capacity of 51718 engines per year and is currently selling 35496 engines annually. The variable cost of producing an engine is $97. The Snowmobile Division of the Taylor Corporation currently purchases 20623 engines from an external supplier at a cost of $144 per engine.

What is the overall benefit to the company if a transfer of 20623 engines from the Engine Division to the Snowmobile Division takes place?

Select one:

a. $223069

b. $969281

c. $766835

d. $0

Explanation / Answer

Spare capacity = 16222 engines

Requirement = 20623 engines

Benefit on transfer of 16222 engines = (144-97) * 16222

= $ 762434

Profit on transfer of remaining 4401 engine = (144-143) * 4401

= $ 4401

Total benefit to teh company = 4401+762434

= $ 766835

Option C is correct.

It is assumed that external supplier cost is treated as selling price in the market.

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