Crane Company manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other...
Crane Company manufactures and sells high-priced motorcycles.
The Engine Division produces and sells engines to other motorcycle
companies and internally to the Production Division. It has been
decided that the Engine Division will sell 28000 units to the
Production Division at 1050 a unit. The Engine Division, currently
operating at capacity, has a unit sales price of $2650 and unit
variable costs and fixed costs of $1050 and $1600, respectively.
The Production Division is currently paying $2500 per unit to an
outside supplier. $110 per unit can be saved on internal sales from
reduced selling expenses.
What is the increase/decrease in overall company profits if this
transfer takes place?
Decrease $1120000
Increase $2905660
Decrease $4200000
Increase $40600000
Homework Answers
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| Crane Company | Amount $ | Note |
| Sales price lost of Engine Division | 2,650.00 | |
| Less: Savings by Production Division by not paying to an outside supplier | 2,500.00 | |
| Less: Saving through internal sales in selling expenses. | 110.00 | |
| Net loss to company | 40.00 | A |
| Units sold | 28,000.00 | B |
| Decrease in overall company profits by | 1,120,000.00 | C=A*B |
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