Gilbert Equipment, SA, a French transportation equipment manufacturer,

| April 14, 2018

Gilbert Equipment, SA, a French transportation equipment manufacturer, is heavily decentralized. Each division head has full authority on all decisions regarding sales to internal or external customers. The Provence Division has always acquired a certain equipment component from the Normandy Division. However, when informed that the Normandy Division was increasing its unit price to €325, the Provence Division’s management decided to purchase the component from outside suppliers at a price of €300. The Normandy Division had recently acquired some specialized equipment that was used primarily to make this component. The manager cited the resulting high depreciation charges as the justification for the price boost. He asked the president of the company to instruct the Provence Division to buy from Normandy at the €325 price. He supplied the following data to back his request:Provence’s annual purchases of component is 2,000 unitsNormandy’s variable costs per unit is € 280Normandy’s fixed costs per unit is € 30Suppose there are no alternative uses of the Normandy facilities and its fixed costs cannot be reduced. Will the company as a whole benefit if the Provence Division buys from the outside suppliers for €300 per unit? Show computations to support your answer.

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