The West and East Divisions Are Divisions in the Same

question 23

Multiple Choice

The West and East Divisions are divisions in the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $440 per unit.The cost data pertaining to the part is supplied by the West Division:
$\begin{array}{ll}\text { Direct materials } & \$ 136 \\\text { Direct labor } & 200 \\\text { Variable overhead } & 40 \\\text { Fixed overhead } & 42\end{array}$
If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.From the standpoint of the company as a whole,should the East Division buy the part from the West Division or the outside supplier?

• A) East Division should buy the part from the West Division because the company's profit will be $14.00 per unit larger.
• B) East Division should buy the part from the West Division because the company's profit will be $40.00 per unit larger.
• C) East Division should buy the part from the West Division because the company's profit will be $50.00 per unit larger.
• D) East Division should buy from an outside supplier at $440 per unit.

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Definitions:

pI

The isoelectric point of a molecule, the pH at which the molecule carries no net electric charge.

Alanine

A nonessential amino acid that plays a crucial role in the biosynthesis of proteins.

Leucine

An essential amino acid utilized in protein synthesis and various metabolic functions within the body, exhibiting a branched-chain structure.

Side Chain

An alkyl or other group of atoms attached to a main part of a molecule, influencing its properties and reactions.