25. Boom Company is presently making the part M55 that is used in one of its products. A total of 7,000 units of this part are produced and used every year. The company's accounting department reports the costs of producing the part at this level of activity, as shown in the below table. An outside supplier has offered to sell the part to the company for $14.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs can be avoided. The special equipment used to make the part was purchased many years ago and has no resale value or other use. The allocated general overhead represents the fixed costs of the entire company, none of which will be avoided if the part is purchased instead of produced internally. If the management decides to buy the part M55 from the outside supplier rather than to continue making the part, what will be the annual impact on the company's overall net operating income? *

a- The overall net operating income will decrease by $13,300 per year.

b- The overall net operating income will increase by $13,300 per year.

c- The overall net operating income will decrease by $46,200 per year.

d- The overall net operating income will increase by $46,200 per year.

e- None of the above.

24- Color Company currently has two divisions: North Division and South Division. Given below are the operating results for last year. Since the South Division is incurring losses, the president of the company is considering the elimination of this division. All the fixed expenses for the division will be eliminated if the division is dropped. If the South Division is dropped, how much higher or lower will Color Companys total net operating income be for the year? *

a- It will be higher by $20,000.

b- It will be lower by $80,000.

c- It will be higher by $100,000.

d- It will be lower by $200,000.

e- None of the above

Item: Amount Direct Materials Direct Labor Variable Manufacturing Overhead Supervisor's Salary Depreciation of Special Equipment $5.10 per unit $3.70 per unit $2.30 per unit $1.80 per unit $6.10 per unit $2.40 per unit Allocated General Overhead North Division South Division Sales Variable Expenses Contribution Margin Fixed Expenses for the Division Segment Margin Allocated Corporate Fixed Expenses Net Operating Income (Loss) $1,200,000 620,000 580,000 220,000 360,000 200,000 $160,000 $600,000 400,000 200,000 120,000 80,000 100,000 $(20,000)