The Dubs division of Fast Company (the parent company) produces wheels for off-road sport vehicles. One-half of Dub's output is sold to the Hoon division of Fast; the remainder is sold to outside customers. Dub's estimated operating profit for the year is shown in the table.
Internal Sales | External Sales | Totals | |
Sales | $300,000 | $400,000 | $700,000 |
Var Mfg. | $160,000 | $160,000 | $320,000 |
Var G&A | $40,000 | $60,000 | $100,000 |
CM | $100,000 | $180,000 | $280,000 |
Fixed Mfg. | $24,000 | $32,000 | $56,000 |
Fixed G&A | $36,000 | $48,000 | $84,000 |
Op. Profits | $40,000 | $100,000 | $140,000 |
Unit Sales | 1,000 | 1,000 | 2,000 |
Unless otherwise stated assume the fixed costs given above are allocated costs and unavoidable. Hoon division has an opportunity to purchase 1,000 wheels of the same quality from an outside supplier on a continuing basis for $250.00 per wheel.
To simplify this example, assume the capacity of the Dubs division is 2,000 units and it is producing and selling units as shown in the table.
By how much would Dubs’ total operating profit change if this investment were undertaken? Indicate an increase with a positive number and a decrease with a negative number, e.g. -10000.
To simplify this example, assume the capacity of the Dubs division is 2,000 units and it is producing and selling units as shown in the table. If Dubs could sell all of its units in the external market at the current external selling price, by how much would Fast’s total contribution margin increase? Now also assume the Hoon division’s external supplier has raised its price to $325.00 per wheel. Indicate an increase with a positive number and a decrease with a negative number, e.g. -10000.
What would be the increase in Hoon division’s total operating profits if Fast Company allows the Hoon division to purchase the wheels it needs from the outside supplier?
By how much would Dubs’ total operating profit change if this investment were undertaken? Indicate an increase with a positive number and a decrease with a negative number, e.g. -10000.