The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 50,000 stakes from the Stake Division. The following data are available for last year's activities in the Stake Division: Capacity in units 400,000stakes Quantity sold to outside customers 350,000stakes Selling price per stake to outside customers$3.00 Total variable costs per stake$2.00 Fixed operating costs$200,000 In order to sell 50,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 30,000 stakes to outside customers. That is, the Stake Division could sell 380,000 stakes each year to outside customers (rather than

Question

only 350,000 stakes as shown above) if it were not making sales to the Solar Light Division.Suppose that last year an outside supplier would have been willing to provide the Solar Light Division with the basic stakes at $2.10 each. If the Solar Light Division had chosen to buy all of its stakes from the outside supplier instead of the Stake Division, the change in net operating income for the company as a whole would have been:

A. $20,000 increase.
B. $25,000 increase.
C. $20,000 decrease.
D. $45,000 increase.

Answer 1

Answer: B