Lock division refuses outside price and cabinet division

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Reference no: EM131215660

Lock Division of Morgantown Corp. sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of $22, and a fixed cost per unit of $10. The Lock Division has a capacity to produce 100,000 units per period. The Cabinet Division currently purchases 10,000 units of part Z-25 from the Lock Division for $40. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $36. What is the effect on Morgantown's overall profit if the Lock Division refuses the outside price and the Cabinet Division decides to buy outside?

No change in Morgantown's profits.

$40,000 increase in Morgantown's profits.

$140,000 decrease in Morgantown's profits.

$80,000 decrease in Morgantown's profits.

Reference no: EM131215660

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