The Fabrication Division of American Car Company Has Offered to Purchase

Essay

The Fabrication Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows:

The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year. The Fabrication Division has been buying batteries from outside sources for $130 each.
Required:
a.Should the Electrical Division manager accept the offer? Explain.
b.From the company's perspective, will the internal sales be of any benefit? Explain.