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abbttmIn each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.
| Case | |||||||
| A | B | ||||||
| Division X: | |||||||
| Capacity in units | 103,000 | 94,000 | |||||
| Number of units being sold to outside customers | 103,000 | 71,000 | |||||
| Selling price per unit to outside customers | $ | 55 | $ | 34 | |||
| Variable costs per unit | $ | 22 | $ | 15 | |||
| Fixed costs per unit (based on capacity) | $ | 9 | $ | 5 | |||
| Division Y: | |||||||
| Number of units needed for production | 23,000 | 23,000 | |||||
| Purchase price per unit now being paid to an outside supplier | $ | 48 | $ | 30 | |||
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