Adams Company has two divisions, A and B. Division A manufactures 6,100 units of product per month. The cost per unit is calculated as follows. Variable costs Fixed costs Total cost $ 7.10 20.70 $ 27.80 Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated using headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a price of at least $27.80 per unit. The manager of Division B argues that the same product can be purchased from another company for $18.50 per unit and requests permission to do so. Required a-1. How much would Adams gain or lose per unit if Division B were to purchase the product from the outside company for $18.50 per unit? Note: Round your answer to 2 decimal places. a-2. Is it in the best interest of Adams Company for Division B to purchase the product from an outside company?
Adams Company has two divisions, A and B. Division A manufactures 6,100 units of product per month. The cost per unit is calculated as follows. Variable costs Fixed costs Total cost $ 7.10 20.70 $ 27.80 Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated using headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a price of at least $27.80 per unit. The manager of Division B argues that the same product can be purchased from another company for $18.50 per unit and requests permission to do so. Required a-1. How much would Adams gain or lose per unit if Division B were to purchase the product from the outside company for $18.50 per unit? Note: Round your answer to 2 decimal places. a-2. Is it in the best interest of Adams Company for Division B to purchase the product from an outside company?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter14: Quality And Environmental Cost Management
Section: Chapter Questions
Problem 6CE: Pinter Company had the following environmental activities and product information: 1. Environmental...
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