Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 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 Supervisor's salary. Depreciation of special equipment Allocated general overhead Per Unit $ 3.80 $ 3.80 $ 1.10 $ 2.50 $ 1.40 $ 8.60 An outside supplier has offered to make and sell the part to the company for $20.80 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, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part E07 from the outside supplier rather than to continue making the part, wha would be the annual impact on the company's overall not operating income?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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O
($163,200)
$6,800
($6,800)
$163,200
Transcribed Image Text:O ($163,200) $6,800 ($6,800) $163,200
Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 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
Supervisor's salary
Depreciation of special equipment
Allocated general overhead
Per Unit
$ 3.80
$ 3.80
$ 1.10
$ 2.50
$ 1.40
$ 8.60
An outside supplier has offered to make and sell the part to the company for $20.80 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, none of which would be avoided if the part were
purchased instead of produced internally. If management decides to buy part E07 from the outside supplier rather than to continue making the part, what
would be the annual impact on the company's overall net operating income?
Transcribed Image Text:Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 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 Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $ 3.80 $ 3.80 $ 1.10 $ 2.50 $ 1.40 $ 8.60 An outside supplier has offered to make and sell the part to the company for $20.80 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, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part E07 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?
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