Reference no: EM13789503
Avery Corporation has two divisions, A and B, which are both organized as profit centers; Division A produces and sells widgets to Division B and to outside customers. Division A has total costs of $35, $20 of which are variable. Division A is operating significantly below capacity and sells the widgets for $50.
Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $45. The manager of Division B is considering the offer but wants to approach Division A first.
What would be the profit impact to Avery Corporation as a whole if Division B purchased the 20,000 widgets it needs from the outside vendor for $45?
No change in profit to Avery.
$100,000 increase in profits.
$100,000 decrease in profits.
$500,000 decrease in profits.
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