The Assembly Division of Scottish Motors Company has offered to purchase 90,000 batteries from the Electrical Division for £104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows: Direct materials Direct manufacturing labor Variable factory overhead Fixed factory overhead Total £ 40 20 12 40 £112 The Electrical Division has been selling 250,000 batteries per year to outside buyers at £136 each; capacity is 350,000 batteries per year. The Assembly Division has been buying batteries from outside sources for £130 each. Required: 5a. Should the Electrical Division manager accept the offer? Explain. 5b. From the company's perspective, will the internal sales be of any benefit? Explain.
The Assembly Division of Scottish Motors Company has offered to purchase 90,000 batteries from the Electrical Division for £104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows: Direct materials Direct manufacturing labor Variable factory overhead Fixed factory overhead Total £ 40 20 12 40 £112 The Electrical Division has been selling 250,000 batteries per year to outside buyers at £136 each; capacity is 350,000 batteries per year. The Assembly Division has been buying batteries from outside sources for £130 each. Required: 5a. Should the Electrical Division manager accept the offer? Explain. 5b. From the company's perspective, will the internal sales be of any benefit? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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