Division a Makes a Part with the Following Characteristics

question 251

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:

Expense

An expense is an outflow of money or other valuable resources that an individual, company, or organization incurs as a result of performing its normal operations.

Indirect Labor

Indirect labor refers to wages paid to employees who are not directly involved in the production of goods or services, such as supervisors and maintenance workers.

Manufacturing

The method of transforming unfinished materials, components, or pieces into final products that satisfy a customer’s expectations or standards.

Product Units

Discrete pieces or quantities of items that have been produced and are often counted, measured, or sold individually.