Lock Division of Morgantown Corporation sells 90,000 units of part Z-25 to the outside market. Part Z-25 sells for $50, has a variable cost of $32, and a fixed cost per unit of $20. The Lock Division has a capacity to produce 125,000 units per period. The Cabinet Division currently purchases 20,000 units of part Z-25 from the Lock Division for $50. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $46. What is the effect on Morgantown's overall profit if the Lock Division refuses to sell at the outside supplier’s price and the Cabinet Division decides to buy outside? Multiple Choice No change in Morgantown's profits. $45,000 increase in Morgantown's profits. $90,000 decrease in Morgantown's profits. $280,000 decrease in Morgantown's profits.
Lock Division of Morgantown Corporation sells 90,000 units of part Z-25 to the outside market. Part Z-25 sells for $50, has a variable cost of $32, and a fixed cost per unit of $20. The Lock Division has a capacity to produce 125,000 units per period. The Cabinet Division currently purchases 20,000 units of part Z-25 from the Lock Division for $50. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $46. What is the effect on Morgantown's overall profit if the Lock Division refuses to sell at the outside supplier’s price and the Cabinet Division decides to buy outside?
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No change in Morgantown's profits.
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$45,000 increase in Morgantown's profits.
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$90,000 decrease in Morgantown's profits.
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$280,000 decrease in Morgantown's profits.
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