Internal or External Acquisitions:
No Opportunity Costs
The Van Division of MotoCar Corporation has offered to purchase 180,000 wheels from the Wheel Division for $42 per wheel. At a normal volume of 500,000 wheels per year, production costs per wheel for the Wheel Division are as follows:
| Direct materials | $15 |
| Direct labor | 10 |
| Variable overhead | 5 |
| Fixed overhead | 19 |
| Total | $49 |
The Wheel Division has been selling 500,000 wheels per year to outside buyers at $59 each. Capacity is 700,000 wheels per year. The Van Division has been buying wheels from outside suppliers at $55 per wheel.
(a) Calculate the net benefit (or cost) to the Wheel Division of accepting the offer from the Van Division.
$___per wheel
(b) Calculate the net benefit (or cost) to Motocar Corp. if the Wheel Division accepts the offer from the Van Division.
$___ per wheel
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