申論題

3. International Appliance Company is a diversified corporation with separate and
distinct operating divisions. Each division’s performance is evaluated on the basis of total
dollar profits and return on division investment.
The Fridge Division manufactures and sells refrigerators. The Division expected to sell
15,000 units in the coming year, with selling price budgeted at $400 per unit. Fridge’s
division manager believes sales can be increased if sales price is reduced. A market research
study conducted by an independent firm indicates that a 5% reduction in the sales price ($20)
will increase sales volume to 17,500 units. Fridge has sufficient production capacity to
manage this increased volume with no increase in fixed cost. At the present time, Fridge uses
a compressor in its refrigerators, which it purchases from an outside supplier at a cost of $70
each.
The company has another division, the Compressor Division, which currently
manufactures a compressor that is similar to the one used by the Fridge and sells it
exclusively to outside firms. The division manager of Fridge has approached the manager of
the Compressor Division, proposing to buy compressors from the Compressor Division. The
manager of Fridge wants all compressors it uses to come from one supplier and has offered to
pay $50 for each compressor. Specifications for the Fridge compressor are slightly different.
They would reduce the Compressor Division’s raw materials cost by $2 per unit. In addition,
the Compressor Division would not incur any variable marketing cost for the unit sold to
Fridge.
The Compressor Division has the capacity to produce 75,000 units. The coming year’s
budgeted income statement for the Compressor Division shown below is based on a sales
volume of 64,000 units, without considering Fridge’s proposal.

(1) Compute the estimated effect on the Compressor Division, from its own viewpoint, if the 17,500 units are supplied to Fridge Division at $50 each. Would the Compressor division accept the offer?