Question

waterworks inc. has two divisions: water and works. water has a surplus inventory of its 5-litre jugs of sparkling water after a customer cancelled a large order. water has offer to sell the surplus inventory to works at a 25% discount off its normal selling price of $2.50 per unit. works normally purchases 5-litre jugs of sparkling water from external suppliers for $2.00. will the works division accept the offer? multiple choice no cannot be determined yes

Answer 1

Works division would not accept the offer to buy 5-litre jugs of sparkling water from the Water division, as they can obtain it cheaper externally.

Step-by-step explanation:

You asked if the Works division of Waterworks Inc. would accept an offer from the Water division to buy surplus inventory of 5-litre jugs of sparkling water at a 25% discount off its normal selling price of $2.50, knowing that Works normally purchases the same product from external suppliers for $2.00 per unit. Calculating the discount, Water is offering to sell these jugs at $1.875 each ($2.50 - 25%). Since Works can purchase the jugs cheaper externally at $2.00, Works division would not accept the offer from Water because accepting the offer would mean paying less than the normal purchase price. This decision might be different if additional factors such as quality or long-term internal relationships are considered, but based solely on the price, Works would refuse the offer.