The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade...
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The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30th are as follows: Sales to Lawn Products Division ($) Sales to Outsiders ($) Revenue 43,500 116,000 Variable costs 29,000 58,000 Fixed costs 7,600 40,500 Gross margin 6,900 17,500 Unit sales 29,000 58,000 The Lawn Products Division has an opportunity to purchase, on a continual basis, 10,000 blades (of identical quality) from an outside supplier, at a cost of $1.90 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?
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