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11 The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Ti

11

The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is:

  Internal   Outside
Sales $ 150,000     $ 400,000  
Variable costs   100,000       200,000  
Fixed costs   30,000       60,000  
Operating profits $ 20,000     $ 140,000  
Unit sales   10,000       20,000  
 


The internal division has an opportunity to purchase 10,000 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. Should the Traker Company allow its internal division to purchase the tires from the outside supplier at $13.00 per unit?

No; making the tires will save Traker $15,000.

Yes; buying the tires will save Traker $15,000.

No; making the tires will save Traker $30,000.

Yes; buying the tires will save Traker $30,000.

Jul 16 2021 View more View Less

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