Martin Company makes 3,000 parts every year that are used in one of its products. The unit product cost of this part is: Variable manufacturing cost Fixed manufacturing cost Total unit product cost Multiple Choice The part can be purchased from an outside supplier for $11.00 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. What would be the financial advantage or disadvantage of purchasing the parts from the outside supplier? O $10,500 advantage O $8,500 disadvantage O $12,500 disadvantage $ $ $ $19,500 advantage 8.50 9.00 17.50
Martin Company makes 3,000 parts every year that are used in one of its products. The unit product cost of this part is: Variable manufacturing cost Fixed manufacturing cost Total unit product cost Multiple Choice The part can be purchased from an outside supplier for $11.00 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. What would be the financial advantage or disadvantage of purchasing the parts from the outside supplier? O $10,500 advantage O $8,500 disadvantage O $12,500 disadvantage $ $ $ $19,500 advantage 8.50 9.00 17.50
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
18
Transcribed Image Text:**Martin Company Cost Analysis and Outsourcing Decision**
Martin Company manufactures 3,000 components annually for use in one of its products. Below is the breakdown of the unit product cost:
- **Variable manufacturing cost:** $8.50
- **Fixed manufacturing cost:** $9.00
- **Total unit product cost:** $17.50
Martin Company is exploring the option of outsourcing this part to an external supplier who offers it at $11.00 per unit. If Martin Company chooses to buy from the supplier, they can eliminate two-thirds of the fixed manufacturing costs.
**Question:**
What would be the financial advantage or disadvantage of purchasing the parts from the outside supplier?
**Multiple Choice Options:**
- $10,500 advantage
- $8,500 disadvantage
- $12,500 disadvantage
- $19,500 advantage
To solve this, students need to calculate the total costs associated with both manufacturing the part in-house and purchasing it externally, and then compare these costs to identify any financial advantages or disadvantages.
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