Hefner Corporation Hefner Corporation Is Comprised of Two Divisions: X and Y.X

question 167

Essay

Hefner Corporation
Hefner Corporation is comprised of two divisions: X and Y.X currently produces and sells a gear assembly used by the automotive industry in electric window assemblies.X is currently selling all of the units it can produce (25,000 per year)to external customers for $25 per unit.At this level of activity,X's per unit costs are:
Y Division wants to purchase 5,000 gear assemblies per year from X Division.Y Division currently purchases these units from an outside vendor at $22 each.
Refer to Hefner Corporation.What will be the effect on overall corporate profits if the two divisions agree to an internal transfer of 5,000 units?

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Definitions:

Sales Units

The number of individual items or units a business sells within a specific period.

Variable Expenses

Expenses that change in proportion to the activity of a business such as production volume or sales.

Fixed Expenses

Costs that do not change in total despite fluctuations in the volume of goods or services produced or sold.

Break-Even Point

The point at which total costs and total revenue are equal, meaning no profit or loss is generated.