Division S of Kracker Company Makes a Part That It

question 120

Multiple Choice

Division S of Kracker Company makes a part that it sells to other companies. Data on that part appear below: Division B, another division of Kracker Company, presently is purchasing 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S.Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of $28 or less and Division B continues to buy from the outside supplier, the company as a whole will:

• A) gain $20,000 in potential profit.
• B) lose $60,000 in potential profit.
• C) lose $70,000 in potential profit.
• D) lose $20,000 in potential profit.

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