SAMMI Manufacturing has two divisions. Division A makes a part with the following characteristics: Production capacity in units Selling price to outside customers.. Variable cost per unit 15,000 units £25 £18 £60,000 Total fixed costs. Division B, 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 outsid 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. b. c. d Better off by £15,000 each period. Worse off by £10,000 each period. Worse off by £30,000 each period. Worse off by £35,000 each period.

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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SAMMI Manufacturing has two divisions.
Division A makes a part with the following characteristics:
Production capacity in units
15,000 units
Selling price to outside customers ..
Variable cost per unit........
£25
£18
£60,000
Total fixed costs
Division B, 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.
b.
C.
d
Better off by £15,000 each period.
Worse off by £10,000 each period.
Worse off by £30,000 each period.
Worse off by £35,000 each period.
Transcribed Image Text:SAMMI Manufacturing has two divisions. Division A makes a part with the following characteristics: Production capacity in units 15,000 units Selling price to outside customers .. Variable cost per unit........ £25 £18 £60,000 Total fixed costs Division B, 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. b. C. d Better off by £15,000 each period. Worse off by £10,000 each period. Worse off by £30,000 each period. Worse off by £35,000 each period.
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