Division A makes a part with the following characteristics:     Production capacity in units.................. 15,000 units   Selling price to outside customers....... P30   Variable cost per unit............................. P20   Fixed cost per unit.................................. P4   Total fixed costs...................................... P60,000       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 P 28 each.   1. 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 A refuses to accept the P28 price internally, the company as a whole will be: A) worse off by P40,000 each period B) worse off by P20,000 each period.              C) better off by P10,000 each period D) worse off by P30,000 each period.   2. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at P28 per unit (Division B's outside price), the company as a whole will be:     A) better off by P20,000 each period. B) worse off by P10,000 each period. C) worse off by P40,000 each period. D) There will be no change in the status of the company as a whole.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Question

Division A makes a part with the following characteristics:

 

 

Production capacity in units..................

15,000 units

 

Selling price to outside customers.......

P30

 

Variable cost per unit.............................

P20

 

Fixed cost per unit..................................

P4

 

Total fixed costs......................................

P60,000

 

    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 P 28 each.

 

1. 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 A refuses to accept the P28 price internally, the company as a whole will be:

A) worse off by P40,000 each period

B) worse off by P20,000 each period.             

C) better off by P10,000 each period

D) worse off by P30,000 each period.

 

2. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at P28 per unit (Division B's outside price), the company as a whole will be:

   

A) better off by P20,000 each period.

B) worse off by P10,000 each period.

C) worse off by P40,000 each period.

D) There will be no change in the status of the company as a whole.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Cost volume profit (CVP) analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education