1.)Soft Cushion Company (SCC) is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase a key component-stuffing-from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per kilogram for the next year. The Production Division recently increased its unit price to $40. The manager of the Production Division presented the following information; variable cost $32, fixed cost $8, to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 kgs. per month.
The Production Division has no alternative use for the facilities used to manufacture the stuffing. What is SCC's the monthly operating income advantage (disadvantage) if the goods are purchased internally?
a. $240,000
b. $640,000
c. $(400,000)
d. $(240,000)
e. $400,000
2.)Soft Cushion Company (SCC) is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase a key component-stuffing-from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per kilogram for the next year. The Production Division recently increased its unit price to $40. The manager of the Production Division presented the following information; variable cost $32, fixed cost $8, to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 kgs. per month.
What is SCC's the monthly operating advantage (disadvantage) of purchasing the goods internally assuming the Production Division is able to utilize the facilities for other operations resulting in monthly cash-operating savings of $40,000?
a. $(400,000)
b. $400,000
c. $(280,000)
d. $(240,000)
e. $40,000