My TV Corporation is presently making part Z95 that is used in one of its products. A total of 5,000units of this part are produced and used every year. The company's Accounting Department reportsthe following costs of producing the part at this level of activity.Direct Materials$3.50Direct Labor$7.10Variable manufacturing overhead$1.30Supervisory salary$0.10Depreciation of special equipment$5.40Allocated general overhead$8.60An outside supplier has offered to make and sell the part to the company for $24.10 each. Thesupervisor work exclusively for the division that makes the part. The special equipment used to makethe part was purchased 2 years ago. The division is currently operating at full capacity. The companyplans to use the facility to make a new TV that will generate 5,000 units at a price of $225 withvariable cost of $125. Fixed cost will increase by $350,000.If management decides to outsource part Z95 to the outside supplier rather than to continue makingthe part, what would be the annual impact on the company's overall net operating income?

Direct Materials refers to the raw materials used to manufacture a product. Normally all the direct…

Answered: what would be the annual impact on the…

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what would be the annual impact on the company's overall net operating income?

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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Question

My TV Corporation is presently making part Z95 that is used in one of its products. A total of 5,000
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
$3.50
Direct Labor
$7.10
Variable manufacturing overhead
$1.30
Supervisory salary
$0.10
Depreciation of special equipment
$5.40
Allocated general overhead
$8.60
An outside supplier has offered to make and sell the part to the company for $24.10 each. The
supervisor work exclusively for the division that makes the part. The special equipment used to make
the part was purchased 2 years ago. The division is currently operating at full capacity. The company
plans to use the facility to make a new TV that will generate 5,000 units at a price of $225 with
variable cost of $125. Fixed cost will increase by $350,000.
If management decides to outsource part Z95 to 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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