The Tire Division of Traker Company Produces Tires for Off-Road

Multiple Choice

The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is:
$\begin{array}{lrr}&\text {Internal}&\text { Outside}\\ \text {Sales } &\$150,000&\$40,000\\ \text { Variable costs } &100,000&200,000\\ \text { Fixed costs} &\underline{30,000}&\underline{60,000}\\ \text { Operating profits} &\underline{\$20,000}&\underline{\$140,000}\\ \text {Unit sales } &10,000&20,000\\\end{array}$

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The internal division has an opportunity to purchase 10,000 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. Should Traker Company allow its internal division to purchase the tires from the outside supplier at $13.00 per unit?

A) No; making the tires will save Traker $15,000.
B) Yes; buying the tires will save Traker $15,000.
C) No; making the tires will save Traker $30,000.
D) Yes; buying the tires will save Traker $30,000.