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

question 53

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.
-What is the monthly operating advantage (disadvantage) of purchasing the goods internally assuming the Production Division is able to utilize the facilities for other operations resulting in monthly cash-operating savings of $40,000?

• A)$440,000
• B)$40,000
• C)$280,000
• D)$(280,000)
• E)$(360,000)

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Definitions:

Fixed Costs

Expenses that do not vary with the level of production or sales over the short term.

Management by Exception

A management strategy where managers only intervene in decision making when performance deviates significantly from standards, allowing more focus on important issues.

Controllable

Refers to costs or elements within a business that can be directly managed, influenced, or altered by decisions of management.

Noncontrollable

Refers to expenses or influences that cannot be altered or changed by the management due to external constraints or fixed contract terms.