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

question 195

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 is operating at capacity and can sell all of its output to outside customers at its usual selling price.If Division A sells the parts to Division B at $24 per unit (Division B's outside price) ,what will be the effect on the operating income of company as a whole?

• A) Higher by $5,000 each period.
• B) Lower by $15,000 each period.
• C) Lower by $5,000 each period.
• D) There will be no change in the status of the company as a whole.

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Definitions:

Attributional Tendencies

The habitual ways a person explains the causes of their own and others' behaviors and events.

External Causes

Factors outside an individual that can influence their behavior or actions, such as environmental, social, or economic conditions.

Internal Causes

Factors within an individual, such as personal beliefs, attitudes, or emotions, that can influence their behavior or outcomes.

Ethnic Minority

A group within a community or nation that possesses different national or cultural traditions from the majority of the population.