The Fabrication Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows:
| Direct materials | $ 40 |
| Direct manufacturing labor | 30 |
| Variable factory overhead | 12 |
| Fixed factory overhead | 40 |
| Total | $112 |
The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year. The Fabrication Division has been buying batteries from outside sources for $130 each.
Required:
| a. | Should the Electrical Division manager accept the offer? Explain. |
| b. | From the company's perspective, will the internal sales be of any benefit? Explain. |
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