Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $145 Division A’s annual purchases 9,500 units Division B’s variable costs per unit $135 Division B’s fixed costs, per year $ 1,240,000 Division B’s capacity utilization 100 % Required: 1. Assume that division B cannot sell its materials to outside buyers. Calculate the net cost or benefit to the company as a whole if Division A purchases the materials outside the company. 2-a. Assume that division B can save $165,000 in fixed costs if it does not manufacture the material for Division A. Calculate the net cost or benefit to the company as a whole for A to purchase outside the company. 2-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market? 3-a. Assume the situation in Requirement 1. If the outside market value for the materials drops $26, calculate the net cost or benefit to the company as a whole for A to purchase outside the company. 3-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows:
| Outside price for materials | $145 | ||
| Division A’s annual purchases | 9,500 | units | |
| Division B’s variable costs per unit | $135 | ||
| Division B’s fixed costs, per year | $ | 1,240,000 | |
| Division B’s capacity utilization | 100 | % | |
Required:
1. Assume that division B cannot sell its materials to outside buyers. Calculate the net cost or benefit to the company as a whole if Division A purchases the materials outside the company.
2-a. Assume that division B can save $165,000 in fixed costs if it does not manufacture the material for Division A. Calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
2-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
3-a. Assume the situation in Requirement 1. If the outside market value for the materials drops $26, calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
3-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
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