The company's Accounting Department reports the following costs of producing the part at this level of activity: A total of 13,500 units of this part are produced and used every year. Part U16 is used by Mcvean Corporation to make one of its products. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be: 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 $25,000 per year for that product. 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. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. Per UnitDirect materials$2.90Direct labor$7.50Variable manufacturing overhead$8.00Supervisor's salary$3.40Depreciation of special equipment$1.80Allocated general overhead$7.00Īn outside supplier has offered to make the part and sell it to the company for $29.80 each. A total of 13,000 units of this part are produced and used every year. 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? If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. Per UnitDirect materials$3.80Direct labor$3.80Variable manufacturing overhead$1.10Supervisor's salary$2.50Depreciation of special equipment$1.40Allocated general overhead$8.60Īn outside supplier has offered to make and sell the part to the company for $20.80 each.

A total of 17,000 units of this part are produced and used every year. Rebelo Corporation is presently making part E07 that is used in one of its products.

Disk inventory x discontinued