Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase​ stuffing, a key​ component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $26per pound for the next year. The Production Division recently increased its unit price to $54. The manager of the Production Division presented the following information — variable cost $38 and fixed cost $14 — to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 21,000 pounds of stuffing per month.   What would be the monthly operating advantage​ (disadvantage) of purchasing the goods​ internally, assuming the external supplier increased its price to $88 per pound and the Production Division is able to utilize the facilities for other​ operations, resulting in a monthly cash−operating savings of $46 per​ pound?       A. $1,050,000   B. ​$(84,000​)   C. $1,848,000   D. ​$(252,000​)

Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter24: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 3CMA
icon
Related questions
Question
Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase​ stuffing, a key​ component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $26per pound for the next year. The Production Division recently increased its unit price to $54.
The manager of the Production Division presented the following information
variable cost
$38
and fixed cost
$14
to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases
21,000 pounds of stuffing per month.
 
What would be the monthly operating advantage​ (disadvantage) of purchasing the goods​ internally, assuming the external supplier increased its price to $88 per pound and the Production Division is able to utilize the facilities for other​ operations, resulting in a monthly
cash−operating savings of $46 per​ pound?
 
 
 
A.
$1,050,000
 
B.
​$(84,000​)
 
C.
$1,848,000
 
D.
​$(252,000​)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Domestic transfer pricing
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning