TheThe Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is: Government Products Division Sales $ 33,000 Variable costs (10,600) Fixed costs (6,000) Operating profits $ 16,400 Unit sales 10,600 Outside Customers $ 76,000 (21,200) (12,000) $ 42,800 21,200.The Government Products Division should purchase the hammers from the outside supplier if the selling price is greater than $17.16.The relevant cost of the sledge hammers produced by the Hammer Division of Excel Company is $17.16, as explained below: Relevant Cost:Variable cost per unit = ($10,600 + $21,200) / 10,600 = $3.68Fixed cost per unit = $6,000 / 10,600 = $0.57Relevant cost per unit = Variable cost per unit + Fixed cost per unit = $3.68 + $0.57 = $4.25Therefore, if the selling price is greater than $17.16 ($4.25 x 4), the Hammer Division should sell its output to the Government Products Division, as it would result in a profit for the Hammer Division.However, if the Government Products Division can obtain hammers of the same quality for $1.25 per unitunit from the outside supplier, then it would cost the Government Products Division $13,250 ($1.25 x 10,600) to purchase from the outside supplier. This would result in a cost saving of $3,750 ($17.16 - $13.25 x 10,600) for the Government Products Division.Therefore, it would be beneficial for the Excel Company to allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit.