The van division of motorcar corporation has offered to, Ask an Expert

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The Van division of MotorCar Corporation has offered to purchase 180,000 wheels from the Wheel division for $42 per wheel. At a normal volume of 5000,000 wheels per year, production costs per wheel for the Wheel Division are as follows:

Direct materals...........$15
Direct labor................10
Variable overhead.........6
Fixedoverhead..............18
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 $55 per wheel.

A. Should the Wheel Division manager accept the offer? Show computations/work.
b. From the standpoint of the company, will the internal sale be beneficial?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9978508

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