Part U16 is used by Movean Corporation to make one of its products. A total of 19,500 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $4.20 Direct labor $8.80 Variable manufacturing overhead $9.30 Supervisor's salary $470 Depreciation of special equipment$ 3.10 Alocated general overhead $8.30 An outside supplier has offered to make the part and sell it to the company for $29.90 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part U16 could be used to make more of one of the company's other products, generating an additional segment margin of $28,400 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be: Multiple Choice $(28150) $(25.050)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Part U16 is used by Movean Corporation to make one of its products. A total of 19,500 units of this part are produced and used every year. The company's Accounting
Department reports the following costs of producing the part at this level of activity:
Direct materials
Direct labor
Variable manufacturing overhead $9.30
Supervisor's salary
$4.70
Depreciation of special equipment$ 3.10
Allocated general overhead $8.30
An outside supplier has offered to make the part and sell it to the company for $29.90 each. If this offer is accepted, the supervisor's salary and all of the variable costs,
including the 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, none of which would be avoided if the part were purchased instead of produced internally. In
addition, the space used to make part U16 could be used to make more of one of the company's other products, generating an additional segment margin of $28,400 per
year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be:
Multiple Choice
Per Unit
$4.20
$8.80
$(28,150)
$(25.050)
Transcribed Image Text:Part U16 is used by Movean Corporation to make one of its products. A total of 19,500 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Direct materials Direct labor Variable manufacturing overhead $9.30 Supervisor's salary $4.70 Depreciation of special equipment$ 3.10 Allocated general overhead $8.30 An outside supplier has offered to make the part and sell it to the company for $29.90 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part U16 could be used to make more of one of the company's other products, generating an additional segment margin of $28,400 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be: Multiple Choice Per Unit $4.20 $8.80 $(28,150) $(25.050)
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