Johnson Chemical Company manufactures a wide variety of industrial chemicals and adhesives. It purchases much of its raw materials from other chemical companies. One chemical, T-Bar, is prepared in one of Johnson's own plants. T-Bar is shipped to other Johnston plants at a specified internal price.
The Johnston adhesive plant requires 10,000 barrels of T-bar per month and can purchase it from an outside supplier for $150 per barrel. Johnston's T-Bar unit has a capacity of 20,000 barrels a month and presently selling that amount to outside buyers at $165 per barrel. The materials are equivalent in quality and functionality. The T-Bar unit's selling cost is $5 per barrel, and its variable cost of manufacturing is $90 per barrel.
1. From the standpoint of the company as a whole, should the adhesive unit purchase T-Bar inside or outside the firm?