Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows:
Outside price for materials | $180 | ||
Division A’s annual purchases | 13,000 | units | |
Division B’s variable costs per unit | $170 | ||
Division B’s fixed costs, per year | $ | 1,310,000 | |
Division B’s capacity utilization | 100 | % | |
Required:
1. Assume that division B cannot sell its materials to outside buyers. Calculate the net cost or benefit to the company as a whole if Division A purchases the materials outside the company.
2-a. Assume that division B can save $220,000 in fixed costs if it does not manufacture the material for Division A. Calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
2-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
3-a. Assume the situation in Requirement 1. If the outside market value for the materials drops $23, calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
3-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
1.
Calculation In Million ($) | |
Purchase Costs from outside ($180*13,000) | $ 2,340,000.00 |
Less: Savings of B's Variable Cost ($170*13,000) | $ 2,210,000.00 |
Net Cost to buy Outside | $ 130,000.00 |
Division A should buy inside from division B.
2-a.
Calculation in Million Dollars | |
Purchase Costs from Outside ($180*13,000) | $ 2,340,000.00 |
Less: Savings of B's Variable Costs ($170*13,000) | $ 2,210,000.00 |
Less:Savings of B Material Assignment | $ 220,000.00 |
Net (Benefit) to Buy Outside | $ (90,000.00) |
2-b
From the above calculation it is evident that due to the savings in division B, division A should buy from outside. Thus the answer is YES. |
3-a.
Calculation in Million ($) | |
Purchase Costs From Outside [($180-$23)*13,000] | $ 2,041,000.00 |
Less: Savings of B's Variable Cost ($170*13,000) | $ 2,210,000.00 |
Net (Benefit) to Buy Outside | $ (169,000.00) |
3-b.
From the above calculation it is evident that due to drop down in unit cost from outsiders, division A should buy from outside rather than from division B. Thus the answer is YES. |
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to...
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $160 Division A’s annual purchases 11,000 units Division B’s variable costs per unit $150 Division B’s fixed costs, per year $ 1,270,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $120 Division A’s annual purchases 7,000 units Division B’s variable costs per unit $110 Division B’s fixed costs, per year $ 1,190,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $125 Division A’s annual purchases 7,500 units Division B’s variable costs per unit $115 Division B’s fixed costs, per year $ 1,200,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $185 Division A’s annual purchases 13,500 units Division B’s variable costs per unit $175 Division B’s fixed costs, per year $ 1,320,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials Division A's annual purchases Division B's variable costs per unit Division B's fixed costs, per year Division B's capacity utilization $100 5,000 units $90 $1,150,000 100% Required: 1. Assume that...
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials Division A's annual purchases Division B's variable costs per unit Division B's fixed costs, per year Division B's capacity utilization $170 12,000 units $160 $1,290,000 100% Required: 1. Assume that...
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials Division A's annual purchases Division B's variable costs per unit $100 5,000 units $90 Division B's fixed costs, per year $1,150,000 Division B's capacity utilization 1008 Required: 1. Assume that...
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