Reference no: EM131219405
The Post Division of the Chester Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the Chester Company . Last year the Lamp Division bought all of its 25,000 posts from Post Division. The following data are available for last year's activities of the Post Division:
Capacity in units 300,000 posts
Selling price per cost to outside customers $1.75
Variable costs per post $0.90
Fixed costs, total $130,000
Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. Further suppose that outside supplier is willing to provide the Lamp Division with basic posts for $1.45 each. If the Lamp Division had chosen to buy all of its posts from the outside supplier instead of the Post Division, the change in net operating income for the company as a whole would have been: A)1,000 decrease B) 10,250 increase C) 1,250 decrease D) 13,750 decrease
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