Truball Incorporated which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials because 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 $ 200 Division A's annual purchases Division B's variable costs per unit $ 190 Division B's fixed costs, per year Division B's capacity utilization 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. 15,000 $1,350,000 100% units 2-a. Assume that division B can save $240,000 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 $25, 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 Incorporated which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials because 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 $ 200 Division A's annual purchases Division B's variable costs per unit $ 190 Division B's fixed costs, per year Division B's capacity utilization 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. 15,000 $1,350,000 100% units 2-a. Assume that division B can save $240,000 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 $25, 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Truball Incorporated which manufactures sports equipment, consists of several operating divisions.
Division A has decided to go outside the company to buy materials because 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
$ 200
Division A's annual purchases 15,000
Division B's variable costs per unit $ 190
Division B's fixed costs, per year
Division B's capacity utilization
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.
$1,350,000
100%
units
2-a. Assume that division B can save $240,000 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 $25,
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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