申論題

1. JUST Industries has multiple divisions. One division, AVA Products, makes a component that another division, MAX, is currently purchasing on the open market. AVA Products currently has a capacity to produce 500,000 components at a variable cost of $7.50 and a full cost of $10.00. AVA Products has outside sales of 460,000 components at a price of $12.50 per unit. MAX currently purchases 50,000 units from an outside supplier at a price of $12.00 per unit. Assume that MAX desires to use a single supplier for its component. Required :

a. What will be the effect on JUST Industries' operating profit if the transfer is made internally? Assume the 50,000 units MAX needs are either purchased 100% internally or 100% externally.