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:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 40 \\\hline \text { Direct manufacturing labor } & 30 \\\hline \text { Variable factory overhead } & 12 \\\hline \text { Fixed factory overhead } & \underline { 40 } \\\hline \text { Total } & \$ 112 \\\hline\end{array}$$ 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 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.