Question

# Division T of Clocker Company makes a timer which it sells for \$35 to outside customers....

 Division T of Clocker Company makes a timer which it sells for \$35 to outside customers. The division has supplied the following data concerning the timer:
 Monthly capacity 25,000 times Variable cost per unit \$18 per timer Fixed cost per unit \$5 per timer
 Division S of Clocker Company is currently buying 10,000 similar timers each month from an overseas supplier at \$32 each. Division S would like to acquire its timers from Division T if the price is right.
 Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. If Division T meets the price of the overseas supplier and sells 10,000 timers to Division S each month, the effect on the monthly net operating income of the company as a whole will be:

rev: 02_05_2016_QC_CS-40277

increase of \$30,000

decrease of \$30,000

decrease of \$140,000

increase of \$170,000

 Sales price to outside customers 35 Less: Cost from overseas supplier 32 Net Contribution margin lost per unit 3 X Number of units 10000 Decrease in monthly net operating income 30000 Option 2 decrease of \$30,000 is correct

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