Division S of Kracker Company makes a part that it sells to other companies. Data on that part appear below: Selling price on the intermediate market$30per unitVariable costs per unit$22per unitFixed costs per unit (based on capacity)$7per unitCapacity in units 50,000units?Division B, another division of Kracker Company, presently is purchasing 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S.?Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of $28 or less and Division B continues to buy from the outside supplier, the company as a
whole will:
A. lose $70,000 in potential profit.
B. gain $20,000 in potential profit.
C. lose $60,000 in potential profit.
D. lose $20,000 in potential profit.
Answer: C
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