The Nicholson and Cage Divisions are in the same company.Currently the Cage Division buys a part from the Nicholson Division for $82 per unit.The Nicholson Division wants to increase the price of the part to $100 per unit.Cage Division can buy the part for $94 from an outside supplier.The cost data for the part obtained from the Nicholson Division is below:
If Nicholson does not provide the parts to Cage,it will save one-fourth of the fixed indirect production costs.The Nicholson Division has excess capacity but no alternative uses of the facilities.
Required:
A)From the standpoint of the company as a whole,should Cage Division continue to buy the part from Nicholson Division?
B)From the standpoint of Cage Division only,should Cage Division continue to buy the part from Nicholson Division?
Definitions:
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