accounting-The Van Division of MotoCar Corporation

QUESTION

No
Opportunity Costs

The
Van Division of MotoCar Corporation has offered to purchase 180,000 wheels
from the Wheel Division for $41 per wheel. At a normal volume of 500,000
wheels per year, production costs per wheel for the Wheel Division are as
follows:

Direct
materials
$15

Direct
labor
11

Variable
overhead
6

Fixed
overhead
17

Total
$49

The
Wheel Division has been selling 500,000 wheels per year to outside buyers at
$58 each. Capacity is 700,000 wheels per year. The Van Division has been
buying wheels from outside suppliers at $56 per wheel.

(a)
Calculate the net benefit (or cost) to the Wheel Division of accepting the
offer from the Van Division.

$Answer

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per wheel

(b)
Calculate the net benefit (or cost) to Motocar Corp. if the Wheel Division
accepts the offer from the Van Division.

$Answer

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per wheel

ANSWER:

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