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?

a. Yes
b. No
c. Carnot be determined

Answer 1

The Works division should accept the offer from Water, as the discounted price would be $1.875 per unit, which is less than their current purchase cost of $2.00 per unit from external suppliers.

Step-by-step explanation:

Will the Works division accept the offer from the Water division to sell the surplus inventory at a discounted price? Considering that the normal selling price per unit is $2.50 and that Water is offering a 25% discount, this would result in a price of $1.875 per unit for Works. However, since Works normally purchases equivalent 5-litre jugs of sparkling water from external suppliers for $2.00 per unit, the offer from Water is indeed cheaper by $0.125 per unit. Thus, economically, it would make sense for the Works division to accept the discounted offer from the Water division.