Centurion Inc. manufactures lighting equipment. It consists of several operating divisions within its business. Division A has decided to go outside the company to purchase materials since Division B plans to increase its selling price for the same materials to $200. Information for Division A and Division B is given in the following table. Outside price for materials Division A's annual purchases Division B's variable costs per unit Division B's fixed costs, per unit Division B's capacity utilisation Task: $150 10,000 units $140 $1,250,000 100% 1. Will the company benefit, if division A purchases outside the company? Assume that division B cannot sell its materials to outside buyers. 2. Assume that division B can save $200,000 in fixed costs if it does not manufacture the material for division A. Should division A purchase from the outside market? 3. Assume the situation in task 1. If the outside market value for the materials drops $20, should division A buy from the outside? Explain.

Centurion Inc. manufactures lighting equipment. It consists of several operating divisions within its business. Division A has decided to go outside the company to purchase materials since Division B plans to increase its selling price for the same materials to $200. Information for Division A and Division B is given in the following table. Outside price for materials Division A's annual purchases Division B's variable costs per unit Division B's fixed costs, per unit Division B's capacity utilisation Task: $150 10,000 units $140 $1,250,000 100% 1. Will the company benefit, if division A purchases outside the company? Assume that division B cannot sell its materials to outside buyers. 2. Assume that division B can save $200,000 in fixed costs if it does not manufacture the material for division A. Should division A purchase from the outside market? 3. Assume the situation in task 1. If the outside market value for the materials drops $20, should division A buy from the outside? Explain.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter2: Building Blocks Of Managerial Accounting

Section: Chapter Questions

Problem 4EB: Roper Furniture manufactures office furniture and tracks cost data across their process. The...

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