Reference no: EM133182814

Question - 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 $155

Division A's annual purchases 10,500 units

Division B's variable costs per unit $145

Division B's fixed costs, per year $1,260,000

Division B's capacity utilization 100%

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.

2-a. Assume that division B can save $205,000 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 $29, 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?