Question

Gibson Company has two divisions, A and B. Division A manufactures 6,000 units of product per month. The cost per unit is calculated as follows. Variable costs Fixed costs Total cost $ 6.30 20.60 $26.90 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 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 $26.90 per unit. The manager of Division B argues that the same product can be purchased from another company for $19.60 per unit and requests permission to do so. Required a-1. How much would the division gain or lose if Division B were to purchase the product from the outside company for $19.60 per unit? (Round your answer to 2 decimal places.) a-2. Is it in the best interest of Gibson Company for Division B to purchase the product from an outside company? per unit a-1. Division's gain or loss a-2. Should Gibson purchase the product from outside?

Answer 1

A-L Calculation of it purchases_frcom Orvision 8 Outside baino lutess) if cutity : Particulars Portuit Qty Ancount (in $) ) Concet. lin foni sio A has no fred cost of its ---- own, HeArredcast mutared at the--- Headquarters- we facristy on allesale --- to visiem A. Therefore theke_would net- be any saviry_in_thefixed cost_wen --- b oivision A ir Shutdown dosed.- - - The fixed cost of wislen A beams Zwelwant (14:1) Sauny due to Loulevastfixed last 1000x20, be_ - $223.600 Lin$) 101460 Internet vandfue luce from Division A 2018 bero Lers:- Outside company Price 19.60 6ooo Gamto dission B_ 7.30 tooo by-prechasiny buen Ouide A 11ttoo 43,800 tation of ove Company 4B, 800 Computation of Ovouce (tramuess to Company if kurchased from outside. Anus) Gain tue prvision B from Gevechasing Outside lapang (Elcom A1). Grunden to Iwéavant fixed Lost Charzpex 103.600 by Division - A__Chum Not-1) Division's gain a Loss 17.30 purit 143,800/ A-2 Should Gibsen purchase the pleodeet --- forom outside ? [No company from Internet $79800 Gram to tanfor. Thoubou it would be in favour of Company to make_Internal meansjeselie. bcom Dilson)