Crede Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor. Division A needs 10,000 lamps for the coming year.
Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are estimated at 40,000 lamps for the next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $1 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $80,000.