company has two divisions, C and E; both are operating as a profit center. C charges E $35 per unit for each unit transferred to B. Other data follow: C's variable cost per unit $35 C's fixed costs $25,000 C's annual sales to B 15,000 units C's annual sales to outsiders 70,000 units C is planning to raise its transfer price to $45 per unit. Division E can purchase units at $43 each from outsiders, but doing so would idle C's facilities now committed to producing units for E. Division C cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should Division E acquire the units, assuming E's market is unaffected
A company has two divisions, C and E; both are operating as a profit center. C charges E $35 per unit for each unit transferred to B. Other data follow:
C's variable cost per unit $35
C's fixed costs $25,000
C's annual sales to B 15,000 units
C's annual sales to outsiders 70,000 units
C is planning to raise its transfer price to $45 per unit. Division E can purchase units at $43 each from outsiders, but doing so would idle C's facilities now committed to producing units for E. Division C cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should Division E acquire the units, assuming E's market is unaffected?
a. Division C, but only at the variable cost per unit
b. Outside vendors
c. Division C, in spite of the increased transfer price
d. Division C, but only until fixed costs are covered, then should purchase from outside vendors
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