Division X makes a part with the following characteristics:
Production capacity 33,500 units
Selling price to outside customers $ 35
Variable cost per unit $ 28
Fixed cost, total $ 108,500
Division Y of the same company would like to purchase 10,085 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $34 each. Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers.
Required:
1. If Division X refuses to accept the $34 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be .
Multiple Choice:
a. worse off by $70,595 each period.
b. better off by $10,085 each period.
c. worse off by $60,510 each period.
d. worse off by $20,170 each period.
e. better off by $60,510 each period.