Mar Company Has Two Decentralized Divisions, X and Y

question 40

Essay

Mar Company has two decentralized divisions, X and Y.Division X has been purchasing certain component parts from Division Y at $75 per unit.Because Division Y plans to raise the price to $100 per unit, Division X desires to purchase these parts from external suppliers for $75 per unit.The following information is available:
Division Y annual production
If Division X buys from an external supplier, the facilities Division Y uses to manufacture these parts will be idle.Assuming Division Y's fixed costs cannot be avoided, what is the result if Mar requires Division X to buy from Division Y at a transfer price of $100 per unit?

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Definitions:

Fiscal Policy

Government policies relating to public spending and taxation, which aim to influence economic conditions, including growth, inflation, and unemployment.

Full Employment

The condition in which all available labor resources are being used in the most economically efficient way, typically characterized by the absence of cyclical unemployment.

Policymakers

Individuals or groups responsible for making decisions on public policy in various areas like economy, education, and health.

Stabilize

To make or become stable or more stable; in economic terms, to reduce fluctuations in economic activity.