The Gear Division Makes a Part with the Following Characteristics

question 125

Multiple Choice

The Gear Division makes a part with the following characteristics:
$$\begin{array} { | l | r | } \hline \text { Production capacity } & 25,000 \text { units } \\\hline \text { Selling price to outside customers } & \$ 18 \\\hline \text { Variable cost per unit } & \$ 11 \\\hline \text { Fixed cost, total } & \$ 100,000 \\\hline\end{array}$$ Motor Division of the same company would like to purchase 10,000 units each period from the Gear Division.The Motor Division now purchases the part from an outside supplier at a price of $17 each.Suppose the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without cutting into sales to outside customers.If the Gear Division refuses to accept the $17 price internally and the Motor Division continues to buy from the outside supplier,the company as a whole will be:

• A) worse off by $70,000 each period.
• B) better off by $10,000 each period.
• C) worse off by $60,000 each period.
• D) worse off by $20,000 each perioD.
• See calculations below.

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Definitions:

Brand Repositioning

A strategy in which marketers change a brand’s focus to target new markets or realign the brand’s core emphasis with changing market preferences.

Co-branding

A marketing partnership between two brands where they collaborate on a product or promotion to leverage each other's brand equity.

Brand Dilution

The weakening of a brand's strength or value, often resulting from overextension, inconsistent messaging, or failure to maintain quality standards.

Rebranded

The process of changing the corporate image of an organization or product.