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What is the impact on the bottom line of the firm as a whole

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Reference no: EM133162005

Question - The Company SIGMA has two subsidiaries E and F. Subsidiary E manufactures products with the following characteristics:

Unit selling price to external customers: $100

Variable cost per unit: $40

Total fixed costs: $120,000

Maximum production capacity (in units): 20,000

E is able to sell all of its production on the external market. F would like to purchase 8,000 units from Branch E at $95 per unit being the same price charged by its external supplier. In the event of a sale to F, the variable cost per unit incurred by E remains unchanged.

E is currently working at 70% of its production capacity. If E refuses to accept the $95 price internally and F continues to buy from the external supplier, what is the impact on the bottom line of the firm as a whole?

a) Decrease of $320,000

b) No answer is appropriate

c) Decrease of $360,000

d) Decrease of $40,000

e) Decrease of $150,000

Reference no: EM133162005

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