The wheel division has been selling 500000 wheels per year

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The Van division of MotorCar Corporation has offered to purchase 180,000 wheels from the Wheel division for $42 per wheel. At a normal volume of 5000,000 wheels per year, production costs per wheel for the Wheel Division are as follows:

  • Direct materals...........$15
  • Direct labor................10
  • Variable overhead.........6
  • Fixedoverhead..............18
  • Total............................$49

The wheel division has been selling 500,000 wheels per year to outside buyers at $58 each. Capacity is 700,000 wheels per year. The Van Division has been buying wheels from outside suppliers at $55 per wheel.

A. Should the Wheel Division manager accept the offer? Show computations/work.
b. From the standpoint of the company, will the internal sale be beneficial?

Reference no: EM13600931

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