THE PORTABLE GARAGE COMPANY (JUNE 2018) B

Hi Tutor, Can you help to guide me to the below answer? as I'm confused about the examiner's view on this If Division B can buy adaptors from outside the group at $13 per unit, then the the optimum position is for Division A to sell as many adaptors as possible to external customers at $15 each and then sell the remainder to Division B at a price to be agreed between them. This would mean that Division A continues to sell Division B 150,000 adaptors but Division B then buys the remaining 30,000 adaptors from an external supplier. This is because the contribution per unit for Division A’s external sales is $7 ($15 – $3 – $4 – $1). This means that for every external sale it loses, it forfeits $7 for the group. However, the incremental cost for the group of Division B buying adaptors from outside the group is only $6 ($13 external cost less the $7 cost of making them in-house). So, it makes sense for Division A to satisfy its external sales first before selling internally.