Question

94)

Assume that a company makes 30,000 units of Part A each year. At this level of production, the company’s accounting system reports the following cost per unit:

Direct materials	$	16
Direct labor		10
Variable manufacturing overhead		4
Fixed manufacturing overhead		8
Total cost per unit	$	38

An outside supplier has offered to sell the company 30,000 parts per year for a price of $33 per part. The company believes that $155,400 of the fixed manufacturing overhead cost being allocated to this part will continue to be incurred even if the part is purchased from the outside supplier. What is the financial advantage (disadvantage) of buying the parts from the outside supplier?

Multiple Choice

• $5,400

• $(79,200)

• $79,200

• $(5,400)

Answer 1