Reference no: EM131905012

Noble Company has two divisions, A and B. Division A manufactures 5,600 units of product per month. The cost per unit is calculated as follows

Variable costs	$ 6.20
Fixed costs	20.60
Total cost	$ 26.80

Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a price of at least $26.80 per unit. The manager of Division B argues that the same product can be purchased from another company for $18.40 per unit and requests permission to do so.

Required:

1. How much would the division gain or lose if Division B to purchase the product from the outside company for $18.40 per unit?

Is it in the best interest of Noble Company for Division B to purchase the product from an outside company?