The Gear Division Makes a Part with the Following Characteristics

question 140

Multiple Choice

The Gear Division makes a part with the following characteristics:
$$\begin{array} { l l} \text { Production capacity } & 25,000 \text { units } \\\text { Selling price to outside customers } & \$ 18 \\\text { Variable cost per unit } & \$ 11 \\\text { Fixed cost, total } & \$ 100,000\end{array}$$
The Motor Division of the same company would like to purchase 10,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $17 each.
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Suppose the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without impacting sales to outside customers. If the Gear Division refuses to accept the $17 price internally and the Motor Division continues to buy from the outside supplier, the company as a whole will be:

• A) worse off by $70,000 each period.
• B) better off by $10,000 each period.
• C) worse off by $60,000 each period.
• D) worse off by $20,000 each period.

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Definitions:

Joint

A point where two bones are connected in the body, allowing for movement and support.

Visual Inspection

The process of examining something closely, primarily using the sense of sight, often to assess its condition or to find defects.

Dislocation

The displacement of a part; usually refers to a bone temporarily out of its normal position in a joint.

Joint Locations

The specific anatomical areas where two or more bones meet, allowing for a variety of movements.