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.

---

Definitions:

Minority Group Members

Individuals belonging to a socially subordinate group that is distinguished by ethnicity, race, religion, or sexual orientation.

Multiculturalism

A policy or ideology that promotes the representation and participation of diverse cultural traditions and peoples within a society.

Marginalizes

The process by which certain groups or individuals are pushed to the edge of society by not allowing them an active voice, recognition, or rights, effectively keeping them in a lower social standing.

Beothuk

An indigenous people native to Newfoundland, Canada, known for their tragic extinction in the early 19th century due to European diseases, violence, and displacement.