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My question comes after table 4 from scenario 1 which I have pasted below:
(i) Intermediate product bought/sold for $40
Division A would rather transfer to Division B, because receiving $50 is better than receiving $40. Division B would rather buy in at the cheaper $40, but that would be bad for the group because there is now a marginal cost to the group of $40 instead of only $18, the variable cost of production in Division A.My question is why would the marginal cost to the group be $18 only and not $18+$10=$28. Why is that the variable cost in Division B was not included in the marginal cost to the group?
Thank you.
It is referring ti the marginal cost of the component, not the finished article.
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