Avery Corporation Has Two Divisions,A and B,which Are Both Organized

question 31

Multiple Choice

Avery Corporation has two divisions,A and B,which are both organized as profit centers;Division A produces and sells widgets to Division B and to outside customers.Division A has total costs of $35,$20 of which are variable.Division A is operating significantly below capacity and sells the widgets for $50.Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $45.The manager of Division B is considering the offer but wants to approach Division A first.What would be the profit impact to Avery Corporation as a whole if Division B purchased the 20,000 widgets it needs from the outside vendor for $45?

• A)No change in profit to Avery.
• B)$100,000 increase in profits.
• C)$100,000 decrease in profits.
• D)$500,000 decrease in profits.

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