Division S of Goody Company Makes a Part with the Following

question 33

Multiple Choice

Division S of Goody Company makes a part with the following characteristics: $\begin{array}{lrr} \text { Production capacity. } & \text {50,000 units } &\\ \text {Selling price on the outside market. } &£ 20 \\ \text {Variable costs per unit. } &£ 12 \\ \text { Fixed costs per unit } &£ 3\\\end{array}$

Division B, another division in the same company, presently is purchasing 10,000 units of a similar part each period from an outside supplier, but would like to start purchasing from Division S. Division B is now paying a price of £18 per unit to the outside supplier.
-Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outsiders. If Division S refuses to accept the £18 price from Division B, the company as a whole will be

• A)better off by £20,000 each period
• B)worse off by £60,000 each period
• C)worse off by £30,000 each period
• D)worse off by £20,000 each period

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Definitions:

Fairness

The quality of making judgments that are free from discrimination or dishonesty.

Basic Consumer Theory

A concept in economics that analyzes consumer choices and behaviors based on preferences, budget constraints, and utility maximization.

Consumer Behavior

The study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences.

Product Reliability

The probability that a product will function without failure over a specified period under stated conditions.