A and Z are two divisions in a company. Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The standard variable costs of producing a unit of H is £140 and a unit of H uses exactly the same resources in Division A s a unit of product G. Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit. If Division A cannot increase its external sales of G, what is the impact on profits if Z accepts the offer?          Division A         Overall company A)    increase                increase B)    increase               decrease C)   decrease                increase D)   decrease               decrease

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A and Z are two divisions in a company.

Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The standard variable costs of producing a unit of H is £140 and a unit of H uses exactly the same resources in Division A s a unit of product G.

Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit.

If Division A cannot increase its external sales of G, what is the impact on profits if Z accepts the offer?

 

       Division A         Overall company

A)    increase                increase

B)    increase               decrease

C)   decrease                increase

D)   decrease               decrease

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