Question

QUESTION 10 10 points The Dubs division of Fast Company the parent company produces wheels for off-road sport vehicles. One hall of Dub's output is sold to the Hoon division of Fast the remainder is sold to outside customers. Dutt's estimated operating profe for the year is shown in the table Internal Sales External Sales Total Sales $300,000 $400,000 Var Mfg $160,000 Var GSA $40,000 $160,000 $60,000 $180,000 CM Fixed Ma $700,000 $320,000 $100,000 $280,000 $55,000 $84.000 $140,000 2,000 $32,000 $100,000 $24,000 $35.000 $40,000 Fixed GSA Op. Profits Unit Sales $48.000 $100,000 1,000 1,000 Unless otherwise stated assume the costs given above are located costs and unavoidable. Hoondision has an opportunity to purchase 1,000 wheels of the same quality from an outside supplier on a continuing basis for 125000 per wheel To simplify this example, assume the capacity of the Dubs division is 2,000 units and it is producing and selling units as shown in the table. If Dubs could sell all of its units in the external market at the current external selling price, by how much would Fast's total contribution margin increase Ale assume the Hoon division would acquireits wheels from the external supplier at the stated price.

Answer 1

Increase in Contribution Margin External sales Variable Mfg Variable G&A Contribution margin per unit Total $400,000 $160,000 $60,000 Per Unit $400 $160 $60 $180 Additional units sold externally Increase in contribution margin 1,000 $180,000