Centralia Components Ltd

Essay

Centralia Components Ltd. manufactures cable assemblies used in transportation, recreational products and medical industries in its Assemblies Division. The capacity of the Assemblies Division is currently 200,000 units and it sells 160,000 units to the outside market at an average price of $96/unit. Cost to manufacture the cable assemblies are $42 variable and $8 fixed. Fixed costs per unit are based on its normal volume of 160,000 units.
Centralia's Mobility Division uses cable assemblies in the manufacture of wheelchairs. It has offered to buy 25,000 units from the Assemblies Division at $48 per unit. Calculate the operating income of the Assemblies Division with and without the offer from the Mobility Division. Should Assemblies accept the offer?