Daniels Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B informed it that the division’s selling price for the same materials would increase to $200. Information for division A and division B follows:

Outside price for materials ............ $150

Division A’s annual purchases .........10,000 units

Division B’s variable costs per unit ........ $140

Division B’s fixed costs , per year .......... $1,250,000

Division B’s capacity utilization ......... 100%

Required

1. Will the company benefit if division A purchases outside the company? Assume that division B cannot sell its materials to outside buyers.

2. Assume that division B can save $200,000 in fixed costs if it does not manufacture the material for division

A. Should division A purchase from the outside market?

3. Assume the situation in requirement 1. If the outside market value for the materials drops $20, should A buy from the outside? Explain.