Division X Makes a Part with the Following Characteristics

question 5

Multiple Choice

Division X makes a part with the following characteristics: Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each.
-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.

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Definitions:

Labor

The physical and mental effort exerted by individuals in the production of goods and services.

Classical

Relating to the first or highest quality, class, or rank, especially in literature, art, or music.

Organizational Theorists

Scholars who study and analyze the structure, behavior, and dynamics of organizations.

Mechanistic

Refers to organizational design or structure that is hierarchical and bureaucratic, focused on efficiency, preciseness, and reliability through rules and established procedures.