Hypothetical Ltd. has two divisions, A and B, which are operated as profit centres. Division A has been selling a part of its production to division B at ₹200 per unit. Annual output of division A is 10,000 units; sales are made as follows:

Division B has found that it can negotiate a contract to buy from an outside supplier at ₹150 per unit.
Should division B be allowed to purchase from outside? In the light of its implications, can you suggest an alternative?

Division B Outside companies Units costs in division A are as follows: Fixed Variable 4,000 units 6,000 units 75 100 175