Question

Division P of Launch Corporation has the capacity for making 79,000 wheel sets per year and regularly sells 64,000 each year on the outside market. The regular sales price is $140 per wheel set, and the variable production cost per unit is $97. Division Q of Launch Corporation currently buys 34,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of $130 per wheel set. If Division Q were to buy the 34,000 wheel sets it needs annually from Division P at $119 per wheel set, the change in annual net operating income for the company as a whole, compared to what it is currently, would be: Multiple Choice 0 $640,000 0 $477,000 0 $1,122,000 0 $103,000 0 $1,117,600 DriverUpdate There is a new version of Driv available. Would you like to u

Answer 1

Launch Corporation Price paid by Division Q for 34000 wheel sets Less:Cost for Division P to produce 34000 wheel sets x $97 per wheel set Less: Lost profit for Division P to cut back sales to the outside (($140 per wheel set- $97 per wheel set ) x 15000 wheel sets) Change in net annual operating income for the company as a whole 4420000 3298000 645000 477000