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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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?

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