A Division of a Company Has Idle Capacity and Produces

question 16

True/False

A division of a company has idle capacity and produces a part that has a variable cost of $52 per unit and a full (absorption) cost of $87. Another division of the same company uses such a part in one of its products and it can buy an identical part from an outside supplier for $81 per unit. The company will be worse off if the latter division decides to buy exclusively from the outside supplier than if the part is made inside the company and transferred from one division to the other.

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Definitions:

Tension

a force that stretches something, making it longer or tighter.

Shear

A strain in materials characterized by slippage along a plane or planes parallel to the imposed stress.

Confining Pressure

The pressure applied equally in all directions on a rock or sediment body usually due to the weight of overlying materials.

Fluid Pressure

The pressure exerted by a fluid at rest in a given point within the fluid, which can significantly affect geological features and human-engineered structures.