Division A makes a part with the following characteristics: Production capacity in units 15,000unitsSelling price to outside customers$25 Variable cost per unit$18 Total fixed costs$60,000 ?Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.?Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per unit, the company as a whole will be:
A. There will be no change in the profits of the company as a whole.
B. better off by $5,000 each period.
C. worse off by $5,000 each period.
D. worse off by $15,000 each period.
Answer: C
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