Division X makes a part with the following characteristics:
Production capacity 33,500 units
Selling price to outside customers $23
Variable cost per unit $17
Fixed cost, total $100,400
Division Y of the same company would like to purchase 14,300 units
each period from Division X. Division Y now purchases the part from an
outside supplier at a price of $19 each.
Suppose Division X has ample excess capacity to handle all of Division
Y\'s needs without any increase in fixed costs and without cutting into
sales to outside customers. If Division X refuses to accept the $19
price internally and Division Y continues to buy from the outside
supplier, the company as a whole will be:
- worse off by $85,800 each period.
- worse off by $28,600 each period.
- better off by $57,200 each period.
- worse off by $114,400 each period.
