The Tire Division of Trakker Company produces tires for off-road sport vehicles. One-third of Tire's output is
Question:
The Tire Division of Trakker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Trakker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is:
Internal | Outside | ||||||
Sales | $ | 174,000 | $ | 464,000 | |||
Variable costs | 116,000 | 232,000 | |||||
Fixed costs | 38,000 | 76,000 | |||||
Operating profits | $ | 20,000 | $ | 156,000 | |||
Unit sales | 11,600 | 23,200 | |||||
The internal division has an opportunity to purchase 11,600 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. Should Trakker Company allow its internal division to purchase the tires from the outside supplier at $13.00 per unit?
No; making the tires will save Trakker $34,800.
No; making the tires will save Trakker $17,400.
Yes; buying the tires will save Trakker $17,400.
Yes; buying the tires will save Trakker $34,800.
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura