The Assembly Division of the Melbourne Car Company Has Offered

Essay

The Assembly Division of The Melbourne 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:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 40 \\\hline \text { Direct manufacturing labour } & 20 \\\hline \text { Variable factory overhead } & 12 \\\hline \text { Fixed factory overhead } & \underline { 40 } \\\hline \text { Total } & \$ 112 \\\hline\end{array}$$
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 Assembly 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.
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