Clariton Corporation has two divisions, Kissimmee and Grant, and evaluates management on the basis of return on investment. Kissimmee currently makes a part that it sells to both Grant and outsiders. Selected data follow.
Selling price to Grant $25
Variable cost 18
Fixed costs 80,000
Kissimmee is seeking an increase in its selling price to $28 per unit because of rising costs. Grant can obtain comparable units from an outside supplier for $26; however, if Grant uses the supplier, Kissimmee will have idle capacity because of an inability to increase sales to outsiders. From the perspective of Clariton Corporation:
a. Kissimmee should continue to do business with Grant and charge $28 per unit.
b. Kissimmee should continue to do business with Grant and charge $25 per unit.
c. Kissimmee should continue to do business with Grant because Kissimmeeâs variable cost per unit is only $18.
d. Grant should do business with the outside supplier.
e. Grant should split its business between Kissimmee and the outside supplier.
Answers: 3
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Clariton Corporation has two divisions, Kissimmee and Grant, and evaluates management on the basis o...
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