The CD Division of Sound Company Makes and Sells Compact

question 5

Multiple Choice

The CD Division of Sound Company makes and sells compact disk players (CDP) that can be sold it presently sells to outside customers. Budgeted costs next month for the CD Division are as follows: $\begin{array}{lrr} \text {Sales of CDPs to outside customers. } & \text { 2,800 units} \\ \text { Selling price per CDP to outside customers. } &£ 185\\ \text {Unit variable production costs. } &£ 120\\\end{array}$

MaxiSound, another division of Sound Company, would like to buy 1,000 of the CDPs from the CD Division. An outside supplier has offered to sell similar CDPs to MaxiSound for £170 each.
- Assume that CD Division's monthly production capacity is 2,800 units. If CD sells 1,000 CDPs to MaxiSound for £170 each, the monthly effect on the profits of CD Division will be a

• A)£15,000 decrease
• B)£42,000 decrease
• C)£50,000 increase
• D)no change

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Definitions:

Scientific Method

A systematic and logical approach to discovering how things in the universe work, involving observation, hypothesis formation, experimentation, and conclusion.

Experiment

A scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact.

Dependent Variable

In an experiment, the variable that is measured to determine how it was affected by the manipulation of the independent variable.

Independent Variable

The variable in an experiment that is manipulated to observe its effect on the dependent variable.