The Post Division of the M $\$ 1.50$ Each the Following Data Are Available for Last Year's Activities

question 128

Multiple Choice

The Post Division of the M.T. Woodhead Company produces basic posts that can be sold t outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from the Post Division at $\$ 1.50$ each. The following data are available for last year's activities of the Post Division:
$\begin{array}{|l|r|}\hline \text { Capacity in Units } & 300,000 \text { posts } \\\hline \text { Selling Price per Post to Outside Customers } & \$ 1.75 \\\hline \text { Variable Costs per Post } & \$ 0.90 \\\hline \text { Fixed Costs, Total } & \$ 150,000 \\\hline\end{array}$
$\text { The total fixed costs would be the same for all the alternatives considered below. }$
- Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?

• A) $1,000 decrease.
• B) $1,250 decrease.
• C) $10,250 increase.
• D) $13,750 decrease.

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Definitions:

Income Decreases

A situation where individuals or households experience a reduction in earnings, affecting their purchasing power and economic stability.

Demand

The volume of goods or services that consumers are ready and financially able to buy at several prices over a designated period.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price, at a specific time.

Complementary Good

A product that is consumed along with another, such that the demand for one increases the demand for the other.