The Electric Division of Ecological Products Co. has developed a wind generator that requires a special "S" ball bearing. The Ball Bearing Division of Ecological Products Co. has the capability to produce such a ball bearing. Unfortunately, the Ball Bearing Division is operating at capacity and will need to reduce production of another existing product, the "T" bearing, by 1,000 units per month to provide the 600 "S" bearings needed each month by the Electric Division. The "T" bearing currently sells for $50 per unit. Variable costs incurred to produce the "T" bearing are $30 per unit; variable costs to produce the new "S" bearing would be $60 per unit. The Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit. Assume that both the Electric Division and Ball Bearing Division are independent, autonomous investment centers. 1. Refer to Ecological Products Co. What is the maximum price per unit that Electric Division would be willing to pay the Ball Bearing Division for the "S" bearing? 2. Refer to Ecological Products Co. What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing? 3. Refer to Ecological Products Co. What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing if the Ball Bearing Division did not need to forfeit any of its existing sales to produce the "S" bearing?
The Electric Division of Ecological Products Co. has developed a wind generator that requires a special "S" ball bearing. The Ball Bearing Division of Ecological Products Co. has the capability to produce such a ball bearing.
Unfortunately, the Ball Bearing Division is operating at capacity and will need to reduce production of another existing product, the "T" bearing, by 1,000 units per month to provide the 600 "S" bearings needed each month by the Electric Division. The "T" bearing currently sells for $50 per unit. Variable costs incurred to produce the "T" bearing are $30 per unit; variable costs to produce the new "S" bearing would be $60 per unit.
The Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit. Assume that both the Electric Division and Ball Bearing Division are independent, autonomous investment centers.
1. Refer to Ecological Products Co. What is the maximum price per unit that Electric Division would be willing to pay the Ball Bearing Division for the "S" bearing?
2. Refer to Ecological Products Co. What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing?
3. Refer to Ecological Products Co. What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing if the Ball Bearing Division did not need to forfeit any of its existing sales to produce the "S" bearing?
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