A and Z are two divisions in a company. Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The standard variable costs of producing a unit of H is £140 and a unit of H uses exactly the same resources in Division A s a unit of product G. Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit. If Division A can sell externally as much as it can produce of G, what is the impact on profits if Z accepts the offer? Division Z Overall company
A and Z are two divisions in a company.
Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The
Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit.
If Division A can sell externally as much as it can produce of G, what is the impact on profits if Z accepts the offer?
Division Z Overall company
A) increase. increase
B) increase decrease
C) decrease increase
D) decrease decrease
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