Cost of production plus its selling and administrative costs

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Reference no: EM131259668

Division A’s cost accounting records show that the cost of its product is $151 per unit—$103 in variable costs and $48 in fixed costs. The market price of the product, $168, barely covers Division A’s cost of production plus its selling and administrative costs. Division A has a maximum capacity of 114,600 units; it is currently producing and selling 78,300 units. Division B makes a product that uses Division A’s product and would like to purchase 12,400 units from Division A for $155. With $44 additional variable costs, Division B produces and sells the product for $280. Division A’s manager is not happy with Division B’s offer and is refusing to sell. Calculate the increase in corporate income in the following situations:

a. Division A sells 12,400 units to Division B for $155 each, and Division B produces and sells 12,400 units for $280.

b. Division A does not sell to Division B. Division B purchases 12,400 units from an external supplier at $168 each and produces and sells 12,400 units for $280.

Reference no: EM131259668

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