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(Solution Download) The Blade Division of Axe Company produces hardened steel blades. One-third of Blade's output is...


 

 

 

 

 

 

 

The Blade Division of Axe Company produces hardened steel

 

blades. One-third of Blade's output is sold to the Forestry

 

Products Division of Axe; the remainder is sold to outside

 

customers. Blades' estimated operating profit for the year is:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forestry

 

Division

Outside

 

Customers

  Sales$

 

32,000  

$

 

74,000  

  Variable costs

 

(11,700)  

 

(23,400)  

  Fixed costs

 

(3,850)  

 

(6,425)  

  Operating

 

profits

$

 

16,450  

$44,175
  Unit sales

 

11,700  

 

23,400  

 

 

 

 

 

 

 

 

The Forestry Division has an opportunity to purchase 11,700

 

blades of the same quality from an outside supplier on a continuing

 

basis. The Blade Division cannot sell any additional products to

 

outside customers. Should the Axe Company allow its Forestry

 

Division to purchase the blades from the outside supplier at $2.10

 

per unit?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No; making the blades will save Axe

 

$19,605.

Yes; buying the blades will save

 

Axe $12,870.

Yes; buying the blades will save

 

Axe $19,605.

No; making the blades will save Axe

 

$12,870.

 


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