The Assembly Division of SLOWCAR Company has offered to purchase 90,000 batteries from the Electrical Division (ED) for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are: Direct materials $40 Direct labor 20 Variable factory overhead 12 Fixed factory overhead 42 Total $114 The Electrical Division has been selling 250,000 batteries per year to outside buyers for $136 each. Capacity is 350,000 batteries/year. The Assembly Division has been buying batteries from outside suppliers for $130 each. Should the Electrical Division manager accept the offer? Will an internal transfer be of any benefit to the company?
The Assembly Division of SLOWCAR Company has offered to purchase 90,000 batteries from the Electrical Division (ED) for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are:
Direct materials $40
Direct labor 20
Variable factory
Fixed factory overhead 42
Total $114
The Electrical Division has been selling 250,000 batteries per year to outside buyers for $136 each. Capacity is 350,000 batteries/year. The Assembly Division has been buying batteries from outside suppliers for $130 each.
Should the Electrical Division manager accept the offer? Will an internal transfer be of any benefit to the company?
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