The Hammer Division of Excel Company Produces Hardened Sledge Hammers

question 76

Multiple Choice

The Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is: $\begin{array}{lrr}&\text { Government }\\&\text { Products } & \text { Outside } \\&\text { Division } & \text { Customers }\\ \text { Sales } &\$15,000&\$40,000\\ \text {Variable costs } &(10,000) &(20,000) \\ \text { Fixed costs } &\underline{(3,000) }&\underline{(6,000) }\\ \text { Operating profits } &\underline{\underline{\$2,000}}&\underline{\underline{\$14,000}}\\ \text { Unit sales} &10,000&20,000\\\end{array}$
The Government Products Division has an opportunity to purchase 10,000 hammers of the same quality from an outside supplier on a continuing basis. The Hammer Division cannot sell any additional products to outside customers. Should the Excel Company allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit?

• A) No; making the hammers will save Excel $1,500.
• B) Yes; buying the hammers will save Excel $1,500.
• C) No; making the hammers will save Excel $2,500.
• D) Yes; buying the hammers will save Excel $2,500.

---

Definitions:

Extraneous Variables

Variables that influence the outcome of an experiment, other than the independent variable being tested.

Mental Processes

The internal cognitive and psychological activities of the mind such as thinking, learning, remembering, and deciding.

Describing Behavior

The process of observing and detailing actions or conduct in an objective and measurable manner.

Objective Introspection

Objective Introspection is the process of examining one's own conscious thoughts and feelings relying on observation of one's mental state, while maintaining as objective a viewpoint as possible.