Use the Information Below to Answer the Following Question(s)

question 177

Multiple Choice

Use the information below to answer the following question(s) .Soft Cushion Company is highly decentralized.Each division is empowered to make its own sales decisions.The Assembly Division can purchase cushion stuffing from the Production Division or from external suppliers.The Production Division has been the major supplier of stuffing in recent years.The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per kilogram for the next year.The Production Division recently increased its unit price to $40.The manager of the Production Division presented the following information; variable cost $32, fixed cost $8, to top management in order to attempt to force the Assembly Division to purchase the stuffing internally.The Assembly Division purchases 20,000 kg per month.
-The seller of product A has idle capacity and has no alternative use for the excess capacity.The seller can sell each unit at $10.Outlay cost is $2.What is the opportunity cost of selling internally?

• A)$0
• B)$8
• C)$10
• D)$12
• E)$16

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Definitions:

Demand for Good

The quantity of a particular good or service that consumers are willing and able to purchase at various prices during a specified time period.

Square Feet

A unit of area measurement equivalent to the area of a square with sides of one foot in length.

Quasilinear Preferences

Preferences where utility is linear in one argument, usually money, allowing for easy analysis of changes in wealth while other goods are evaluated non-linearly.

Homothetic

Pertaining to a class of production functions or utility functions where equal proportionate changes in inputs result in equal proportionate changes in output.