Question

Required information

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Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since 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		$150
Division A’s annual purchases		10,000	units
Division B’s variable costs per unit		$140
Division B’s fixed costs, per year	$	1,250,000
Division B’s capacity utilization		100	%

Required:

1-a. Assume that division B can sell 10,000 units outside the company for $215 per unit with variable marketing costs of $10. What will be the net benefit/cost to the firm as a whole if Division B sells outside? (Enter all the amounts as positive value.)

Answer 1

Answer:

Net benefit/cost to the firm as a whole if Division B sells outside
	Amount($)
Revenue for Division B(10000*215)	21,50,000
Less:
variable cost(10000*140)	14,00,000
Variable marketing costs (10000*10)	1,00,000
	6,50,000
Less: Excess price paid Div A to outsider supplier
(10000 unit*$10)	1,00,000
Net benefit/cost	5,50,000
*150-140=$10