A company is considering buying a part that they currently make for one of their products. The costs of producing the 8,900 units of the part that are needed every year are as follows. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $8.20 $4.60 $9.10 $ 3.40 $2.90 $ 1.60 An outside supplier has offered to make the part and sell it to the company for $28.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,100 of these allocated general overhead costs would be avoided. In addition, the space used to produce the part could be used to make more of one of the company's other products, generating an additional segment margin of $16.300 per year for that product Required: a. Calculate the financial advantage (disadvantage) of accepting the supplier's offer to purchase the part Financial advantage (disadvantage) is

A company is considering buying a part that they currently make for one of their products. The costs of producing the 8,900 units of the part that are needed every year are as follows. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $8.20 $4.60 $9.10 $ 3.40 $2.90 $ 1.60 An outside supplier has offered to make the part and sell it to the company for $28.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,100 of these allocated general overhead costs would be avoided. In addition, the space used to produce the part could be used to make more of one of the company's other products, generating an additional segment margin of $16.300 per year for that product Required: a. Calculate the financial advantage (disadvantage) of accepting the supplier's offer to purchase the part Financial advantage (disadvantage) is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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