Division a Makes a Part with the Following Characteristics

question 3

Multiple Choice

Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
-Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division B continues to purchase parts from an outside supplier rather than from Division A, the company as a whole will be:

• A) worse off by $30,000 each period.
• B) worse off by $10,000 each period.
• C) better off by $15,000 each period.
• D) worse off by $35,000 each perioD.Purchasing from outside supplier costs $6 more than producing internally would ($24 - $18). The total for all 5,000 parts is $6 x 5,000 = $30,000. Therefore, if the company continues to purchase from the outside supplier, it will be $30,000 worse off.

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Definitions:

Cellular Respiration

The process by which cells convert sugars into energy in the form of ATP, consuming oxygen and releasing carbon dioxide.

Mitochondria

Mitochondria are organelles within cells that are responsible for producing adenosine triphosphate (ATP), the cell's main energy carrier, through the process of oxidative phosphorylation.

ATP

Adenosine triphosphate, a molecule that carries energy within cells for metabolism.

Mitochondria

Organelles found in the cytoplasm of eukaryotic cells, involved in producing energy through the process of cellular respiration.