The Gear Division Makes a Part with the Following Characteristics

question 8

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 that the Gear Division is operating at capacity and can sell all of its output to outside customers.If the Gear Division sells the parts to Motor Division at $17 per unit,the company as a whole will be:

• A) better off by $10,000 each period.
• B) worse off by $20,000 each period.
• C) worse off by $10,000 each period.
• D) There will be no change in the status of the company as a whole.

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Definitions:

Internal Control

A process implemented by a company to help ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Voucher System

An accounting system that involves the process of creating, approving, and documenting all purchases made by the company through vouchers.

Voucher Register

A comprehensive log that records details of all vouchers issued, including payment information, for accounting and auditing purposes.

Check Register

A record of checks written, deposits made, and balances in a checking account, used for tracking financial transactions.