Alfa Ltd. has two decentralised divisions, D1 and D2. D1 has always purchased certain units from D2 at `300 per unit. As D2 plans to raise the price to ₹400 per unit, D1 desires to purchase these units from outside suppliers for `300 per unit. The costs of D2 are as follows:

If D1 buys from an outside supplier, the facilities D2 uses to manufacture these units would remain idle.
From the viewpoint of the company as a whole, should D1 purchase from D2 at ₹400 per unit, or from outside at ₹300 per unit?

Transcribed Image Text:

Variable cost per unit 250 Annual fixed costs 50,000 Annual production for D, (units) 1,000