The Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is: Government Products Division Outside Customers Sales $ 15,000 $ 40,000 Variable costs (10,000 ) (20,000 ) Fixed costs (3,000 ) (6,000 ) Operating profits $ 2,000 $ 14,000 Unit sales 10,000 20,000 The Government Products Division has an opportunity to purchase 10,000 hammers of the same quality from an outside supplier on a continuing basis. The Hammer Division cannot sell any additional products to outside customers. Should the Excel Company allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit? Multiple Choice Yes; buying the hammers will save Excel $2,500. No; making the hammers will save Excel $1,500. No; making the hammers will save Excel $2,500. Yes; buying the hammers will save Excel $1,500.
The Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is: Government Products Division Outside Customers Sales $ 15,000 $ 40,000 Variable costs (10,000 ) (20,000 ) Fixed costs (3,000 ) (6,000 ) Operating profits $ 2,000 $ 14,000 Unit sales 10,000 20,000 The Government Products Division has an opportunity to purchase 10,000 hammers of the same quality from an outside supplier on a continuing basis. The Hammer Division cannot sell any additional products to outside customers. Should the Excel Company allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit? Multiple Choice Yes; buying the hammers will save Excel $2,500. No; making the hammers will save Excel $1,500. No; making the hammers will save Excel $2,500. Yes; buying the hammers will save Excel $1,500.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is:
| Government Products Division | Outside Customers | ||||||||||
| Sales | $ | 15,000 | $ | 40,000 | |||||||
| Variable costs | (10,000 | ) | (20,000 | ) | |||||||
| Fixed costs | (3,000 | ) | (6,000 | ) | |||||||
| Operating profits | $ | 2,000 | $ | 14,000 | |||||||
| Unit sales | 10,000 | 20,000 | |||||||||
The Government Products Division has an opportunity to purchase 10,000 hammers of the same quality from an outside supplier on a continuing basis. The Hammer Division cannot sell any additional products to outside customers. Should the Excel Company allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit?
Multiple Choice
-
Yes; buying the hammers will save Excel $2,500.
-
No; making the hammers will save Excel $1,500.
-
No; making the hammers will save Excel $2,500.
-
Yes; buying the hammers will save Excel $1,500.
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