$27.$ Penagos Corporation is presently making part Z$43$ 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:

Per Unit

Direct materials $ $1\mathrm{.}10$

Direct labor $ $3\mathrm{.}10$

Variable overhead $ $6\mathrm{.}90$

Supervisor's salary $ $5\mathrm{.}80$

Depreciation of special equipment $ $5\mathrm{.}20$

Allocated general overhead $ $5\mathrm{.}60$

An outside supplier has offered to produce and sell the part to the company for $$20\mathrm{.}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. If the outside supplier's offer were accepted, only $$4,000$ of these allocated

general overhead costs would be avoided.

If management decides to buy part Z$43$ from the outside supplier rather than to continue making

the part, what would be the annual financial advantage $($disadvantage$)?$

A$.($$$38,500)$

B$.($$$30,500)$

C$.($$$34,500)$

D$.($$$15,500)$

$28.$ The Draper Corporation is considering dropping its Doombug toy due to continuing

losses. Data on the toy for the past year follow:

Sales of $15,000$ units $ $150,000$

Variable expenses $120,000$

Contribution margin $30,000$

Fixed expenses $40,000$

Net operating loss $ $(10,000)$

If the toy were discontinued, Draper could avoid $$8,000$ per year in fixed costs. The remainder of

the fixed costs are not avoidable.

The annual financial advantage $($disadvantage$)$ for the company from discontinuing the

production and sale of Doombugs would be:

A$.$ $$18,000$

B$.($$$22,000)$

C$.($$$30,000)$

D$.$ $$10,000$