Division a of Spangler Company Expects the Following Results Division B Has the Opportunity to Buy the 5,000 Units

question 18

Essay

Division A of Spangler Company expects the following results:
$\begin{array}{lcc}&\text { To Division B} &&\text {To Outsiders }\\ \text {Sales}(5,000 \times \$ 60)&\$300,000\\(\$ 25,000 \times \$ 72) & & \$ &1, 800,000\\\text { Variable costs at } \$ 36 &\underline{ 180,000} &&\underline{ 900,000 }\\ \text { Contribution margin } & \$ 120,000& \$ & 900,000 \\ \begin{array}{l}\text { Fixed costs, all common, allocated on the basis of} \\\text { relative units }\end{array} &\underline{ 60,000} & & \underline{300,000} \\ \text { profit } & \$60,000 & \$ & 600,000 \\\end{array}$
Division B has the opportunity to buy the 5,000 units it needs from an outside supplier at $45 each.
Required (consider each question independently):
(a) Division A refuses to meet the $45 price, sales to outsiders cannot be increased, and Division B buys from the outside supplier. Compute the effect on the income of Spangler Company.
(b) Division A cannot increase its sales to outsiders, does meet the $45 price, and Division B continues to buy from Division A. Compute the effect on the income of Spangler Company.

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Definitions:

Superior-Subordinate Relationships

The dynamic between individuals with higher positions and those with lower positions within an organization's hierarchy.

Formal Communication Channels

Established pathways for message flow within an organization, often documented and hierarchical, such as memos, email, and reports.

Formal Structure

The officially designated arrangement of roles, responsibilities, and relationships within an organization.

Authority

The officially sanctioned power or right to make decisions, direct others, and enforce obedience within a specific context or organization.