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