The Micro Division of ACT Computers Produces Computer Chips That

Essay

The Micro Division of ACT Computers produces computer chips that are sold to the Personal Computer Division and to outsiders.Operating data for the Micro Division for 2017 are as follows:
$$\begin{array} { | l | r | r | } \hline & \text { Internal Sales } & \text { External Sales } \\\hline \text { Sales: } & & \\\hline 300000 \text { chips at } \$ 10 & \$ 3000000 & \\\hline 200000 \text { chips at } \$ 12 & & \$ 2400000 \\\hline \text { Variable expenses at } \$ 4 & \underline { 1200000 } & \underline { 800000 } \\\hline \text { Contribution margin } & \$ 1800000 & \$ 1600000 \\\hline \text { Fixed cost (allocated in units) } & \underline { 1500000 } & \underline { 1000000 } \\\hline \text { Operating profit } & \$ 300000 & \$ 600000 \\\hline\end{array}$$
The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.60 each.The manager of Micro Division is not willing to meet the $8.60 price.She argues that it costs her $9.00 to produce and sell each chip.Sales to outside customers are at a maximum of 200 000 chips.
Required:
a.Verify the Micro Division's $9.00 unit cost figure.
b.Should the Micro Division meet the outside price of $8.60? Explain.
c.Could the $8.60 price be met and still show a profit for the Micro Division sales to the Personal Computer Division? Show computations.
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