Division S Sells Its Product to Unrelated Parties at a Price

question 25

Essay

Division S sells its product to unrelated parties at a price of $20 per unit.It incurs variable costs of $7 per unit and has fixed costs of $50,000 per month.Monthly production is generally 10,000 units.Division B uses Division S's product in its operations.It can purchase the units from Division S at $20 per unit,but must pay a $1.50 per unit in shipping costs.Alternatively,Division B can buy from Division S's competition at a delivered price of $21 per unit.Required:
a.From the company's perspective,should Division B purchase the units internally or externally? Assume Division S has ample capacity to handle all of Division B's needs.b.Would your answer change if Division S can sell everything it produces to outside customers?

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Definitions:

Subculture

A group within a larger culture that has its own distinct set of values, practices, and beliefs, which differentiate it from the broader culture.

Counterculture

A cultural movement opposing the dominant values and norms of society, often associated with the 1960s and early 1970s.

Organizational Culture

The set of shared values, beliefs, norms, and practices that characterize an organization and guide its members' behaviors.

Corporate Culture

the shared values, attitudes, standards, and beliefs that characterize members of an organization and define its nature.