Question

The company's Accounting Department reports the following costs of producing the part of 20000 units of this part are produced and used eve M that is used in one of its products. As artin Corporation is presently making part this level of activity Direct materials Direct labor Supervisor's salary Depreciation of special equipment Allocated general overhead 5.50 $8.50 An outside supplier has offered to produce and sell the part to the company for $20.30 each. If this is accepted the supervisor's salary and all of the variable concuding director can be avoided. The special equipment used to make the part was purchased any years ago and has nevege voluer other use. The located general overhead represented costs of the company, none of which would be avoided if the part were purchased instead of produced In to the facts given above would be ancial advantage da me that the cened to produce part 98 could be used to make more of one of the company's her products, generangan additional segment margin of $50.500 per year for that product What t e of buying a from the outside and using the tree space to make more of the other product? OS 990.500 Oo oo 6.100

Answer 1

	Cost of making	Cost of buying	Increase/Decrease in income
Direct material	20,000 x 2.60 = 52,000	0	52,000
Direct labor	20,000 x 3.80 = 76,000	0	76,000
Variable overhead	20,000 x 1.50 = 30,000	0	30,000
Supervisor's salary	20,000 x 4.50 = 90,000	0	90,000
Depreciation of special equipment	20,000 x 4.50 = 90,000	90,000	0
Allocated general overhead	20,000 x 4.90 = 98,000	98,000	0
Additional segment margin	0	-50,500	50,500
Outside supplier's price	0	20,000 x 20.30 = 406,000	-406,000
Total cost	$436,000	$543,500	- $107,500

Financial disadvantage of buying part from outside supplier = ($107,500)

First option is the the correct option

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