Division a Makes a Part with the Following Characteristics Division B, Another Division of the Same Company, Would Like

question 2

Multiple Choice

Division A makes a part with the following characteristics:
$\begin{array}{|l|r|}\hline \text { Production Capacity in Units } & 15,000 \text { units } \\\hline \text { Selling Price to Outside Customers } & \$ 25 \\\hline \text { Variable Cost per Unit } & \$ 18 \\\hline \text { Total Fixed Costs } & \$ 60,000 \\\hline\end{array}$
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 has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers.If Division B continues to purchase parts from an outside supplier rather than from Division A,what will be the effect on the operating income of the company as a whole?

• A) Lower by $30,000 each period.
• B) Lower by $10,000 each period.
• C) Higher by $15,000 each period.
• D) Lower by $35,000 each period.

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Definitions:

Succession Management

A strategy to identify and develop future leaders at a company, ensuring a smooth transition and the continued effectiveness of the organization in the face of change.

Employee Characteristic

Attributes or qualities of an individual worker, such as skills, attitudes, and behaviors, that can impact job performance.

Talent Management Culture

An organizational culture that emphasizes the strategic management of talent resources to ensure attraction, retention, and development of the best employees.

CEOs

Chief Executive Officers; the highest-ranking person in a company or other institution, ultimately responsible for making managerial decisions.