Problem - ACME Inc. manufactures electronics and it consists of several divisions.
Division A wants to purchase materials from Division B at a price of $85 per unit.
Division B can produce 25,000 units at full capacity, and is currently operating at 90% capacity with a variable cost of $80 per unit.
Division B currently sells only to outside customers who pay $115 per unit.
Division A pays an outside company $110 per unit.
If purchased from Division B, B's variable costs would be $10 less because it saves on marketing expenses.
Division A requires 10,000 units.
How would Division B selling to Division A affect Division A's purchasing costs?
How would intercompany sales affect Division B?
What solution would be best for ACME Inc., assuming Division B has the ability to operate at full capacity?
(In other words, where should the divisions purchase from to maximize their profit?