Question Details

The Assembly Division of American Car Company 




1.	The Assembly Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit.  At a normal volume of 250,000 batteries per year, production costs per battery are as follows:

Direct materials	$  40
Direct manufacturing labor	20
Variable factory overhead	12
Fixed factory overhead	40
     Total	$112

The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year.  The Assembly Division has been buying batteries from outside sources for $130 each.

Required:

	a.	Should the Electrical Division manager accept the offer ? Explain.

	b.	From the company's perspective, will the internal sales be of any benefit? Explain.



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