A company had two divisions – AA and BB. AA Division makes and sells K7 motors which can either be sold to outside customers or to BB Division. Next month the following are expected to occur at AA Division: Selling price per K7 motor to outside customers P115 Unit variable production cost P 75 Monthly capacity of K7 motors 3,500 units Sales of K7 motors to outside customers 2,100 units BB Division would like to buy 1,200 of these motors from AA Division next month. BB Division can purchase these motors from an
A company had two divisions – AA and BB. AA Division makes and sells K7 motors which can either be sold to outside customers or to BB Division. Next month the following are expected to occur at AA Division: Selling price per K7 motor to outside customers P115 Unit variable production cost P 75 Monthly capacity of K7 motors 3,500 units Sales of K7 motors to outside customers 2,100 units BB Division would like to buy 1,200 of these motors from AA Division next month. BB Division can purchase these motors from an
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 26P
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A company had two divisions – AA and BB. AA Division makes and sells K7 motors which can either be sold to outside customers or to BB Division. Next month the following are expected to occur at AA Division:
Selling price per K7 motor to outside customers P115
Unit variable production cost P 75
Monthly capacity of K7 motors 3,500 units
Sales of K7 motors to outside customers 2,100 units
BB Division would like to buy 1,200 of these motors from AA Division next month. BB Division can purchase these motors from an outside supplier at P110 each.
- If AA sells 1,200 of the motors to BB next month at a price of P110 per motor, what is the monthly effect on profits of the company as a whole?
- Suppose sales of K7 motors to outside customers is expected to be 2,840 unit next month while all other conditions remain the same. What is the monthly effect on the profit of the company as a whole if AA sells 1,200 of the motors to BB next month at a price of P110 per motor?
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