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Division S of Barrell Company makes a part it sells to other companies. Data on the part are as follows: Selling price on the external market Variable cost per unit Fixed costs per unit (based on capacity) Capacity in units 50,000 units $30 per unit O gain $20,000 in potential profit Ⓒlose $60,000 in potential profit lose $70,000 in potential profit O lose $20,000 in potential profit O None of the above $22 per unit $7 per unit Division B, another division of Barrell Company, currently purchases 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S. Suppose Division S has enough idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of less than $28 and Division B continues to buy from the outside supplier, then the company as a whole will:

Division S of Barrell Company makes a part it sells to other companies. Data on the part are as follows: Selling price on the external market Variable cost per unit Fixed costs per unit (based on capacity) Capacity in units 50,000 units $30 per unit O gain $20,000 in potential profit Ⓒlose $60,000 in potential profit lose $70,000 in potential profit O lose $20,000 in potential profit O None of the above $22 per unit $7 per unit Division B, another division of Barrell Company, currently purchases 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S. Suppose Division S has enough idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of less than $28 and Division B continues to buy from the outside supplier, then the company as a whole will:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Division S of Barrell Company makes a part it sells to other companies. Data on the part are as follows: Selling price on the external market Variable cost per unit Fixed costs per unit (based on O None of the above $30 per unit O gain $20,000 in potential profit lose $60,000 in potential profit lose $70,000 in potential profit lose $20,000 in potential profit $22 per unit $7 per unit capacity) Capacity in units 50,000 units Division B, another division of Barrell Company, currently purchases 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S. Suppose Division S has enough idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of less than $28 and Division B continues to buy from the outside supplier, then the company as a whole will:
Transcribed Image Text:Division S of Barrell Company makes a part it sells to other companies. Data on the part are as follows: Selling price on the external market Variable cost per unit Fixed costs per unit (based on O None of the above $30 per unit O gain $20,000 in potential profit lose $60,000 in potential profit lose $70,000 in potential profit lose $20,000 in potential profit $22 per unit $7 per unit capacity) Capacity in units 50,000 units Division B, another division of Barrell Company, currently purchases 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S. Suppose Division S has enough idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of less than $28 and Division B continues to buy from the outside supplier, then the company as a whole will:
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