Suppose Division X Has Ample Excess Capacity to Handle All

question 13

Multiple Choice

Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y 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.Instead of incurring a cost of $11 per unit, the company would have to incur a cost of $17 per unit to purchase from an outside supplier.Therefore, the company would be worse off by $60,000 per period = ($17 per unit - $11 per unit) × 10,000 units per period

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Definitions:

Duty of Notification

The obligation to inform or update relevant parties about important information or changes.

Constructive Information

Constructive information refers to knowledge that one is presumed by law to have, often because it is a matter of public record or because one should have discovered it by due diligence.

Specific Performance

A legal remedy requiring a party to perform their part of a contract, rather than paying damages for not fulfilling the contract.

Computer Program

A computer program is a set of instructions that a computer follows to perform specific tasks or operations, written in a programming language.