Neely Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Neely Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:Selling price per chip$50 Variable costs per chip$20 Fixed production costs$60,000 Fixed SG&A costs$90,000 Monthly capacity10,000chipsExternal sales6,000chipsInternal sales0chipsPresently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.Refer to Neely Systems Corporation. Assume, for this question only, that the Computer Chip Division is selling all that it can produce to external buyers for $50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the Computer Division at $45? (Assume that the Computer Division can purchase the super chip from an outside supplier for $45.)Select one:a. $90,000 increaseb. $20,000 increasec. $20,000 decreased. no effect

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

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Neely Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Neely Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip	$50
Variable costs per chip	$20
Fixed production costs	$60,000
Fixed SG&A costs	$90,000
Monthly capacity	10,000	chips
External sales	6,000	chips
Internal sales	0	chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Refer to Neely Systems Corporation. Assume, for this question only, that the Computer Chip Division is selling all that it can produce to external buyers for $50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the Computer Division at $45? (Assume that the Computer Division can purchase the super chip from an outside supplier for $45.)

Select one:

a. $90,000 increase

b. $20,000 increase

c. $20,000 decrease

d. no effect

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