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Novacar Company manufactures automobiles. The red card division sells its red cars for $25,000 each to the general public. The red card have manufacturing cost of $12,500 each for variable and $5,000 each for fixed cost. The division's total fixed manufacturing cost are $25,000,000 at the normal volume of 5,000 units. The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at its full cost of $13,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside sales of 5,000. The 6,000 volume is within the divisions relevant operating range. Explain whether the red car division should accept the offer. Support your decision showing all calculation.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9981122

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