The Blade Division of Dana Company Produces Hardened Steel Blades

Multiple Choice

The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. The Blade Division's estimated sales and cost data for the year ending June 30 are as follows: The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis. Assume that the Blade Division cannot sell any additional products to outside customers. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

A) Yes, because buying the blades would save Dana Company $500.
B) No, because making the blades would save Dana Company $1,500.
C) Yes, because buying the blades would save Dana Company $2,500.
D) No, because making the blades would save Dana Company $2,500.