Division a Makes a Part with the Following Characteristics

question 77

Multiple Choice

Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per unit, the company as a whole will be:

• A) better off by $5,000 each period.
• B) worse off by $15,000 each period.
• C) worse off by $5,000 each period.
• D) There will be no change in the profits of the company as a whole.

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Definitions:

Married Filing Jointly

A tax filing status for married couples that allows them to combine their tax obligations into a single return.

Tax Equation

A mathematical formula used to calculate the amount of taxes owed based on income, deductions, and applicable tax rates.

Net Pay

The amount of money a worker takes home after all deductions, such as taxes and retirement contributions, have been subtracted from the gross salary.

Social Security Tax

The amount of Social Security a worker pays depends on the Social Security percentage and the maximum taxable income for that year; the amount is split between the employee and the employer.