Edwards Inc

question 117

Essay

Edwards Inc. manufactures electronics. It consists of several divisions classified as investment centers for performance evaluation purposes. Division A desires to purchase materials from Division B at a price of $85 per unit. Division B can produce 25,000 units at full capacity, and is currently operating at 90% capacity with a variable cost of $80 per unit. Division B currently sells only to outside customers who pay $115 per unit. Division A pays an outside company $110 per unit. If purchased from Division B, B's variable costs per unit would be $10 less because the division would save on marketing expenses for these internal transfers. Division A requires 10,000 units.
Required:
1. How would Division B selling to Division A affect Division A's purchasing costs?
2. How would intercompany sales affect Division B?
3. What solution would be best for Edwards Inc., assuming Division B has the ability to operate at full capacity?

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Definitions:

Collaborative Initiatives

Projects or efforts undertaken by multiple parties who work together to achieve a common goal or solve a shared problem.

Sustainable Innovation

The development of new products, processes, or services that meet current needs without compromising the ability of future generations to meet their own needs, often with a focus on environmental sustainability.

Quarterly Earnings

A report of a company's financial performance, including revenue and profit, issued every three months.

Resource Constraints

Limitations in the availability of resources such as finances, materials, and human capital that can affect an organization's ability to achieve its goals.