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26 An outside supplier has offered to produce and sell the cupholders to Club Car for $17.10 each. If this offer is accepted, the supervisor's

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26

An outside supplier has offered to produce and sell the cupholders to Club Car for $17.10 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 cupholders was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the cupholders were purchased instead of produced internally. If management decides to buy the cupholders from the outside supplier rather than to continue making the part, what would be the annual financial advantage (disadvantage)? Club Car is an American company that manufactures electric and gas-powered golf cars and UTVs for personal and commercial use. The golf carts have unique cupholders, also currently produced by Club Car. Every year the company manufactures 7,000 cupholders. The company's Accounting Department reports the following costs of producing the cupholders at this level of activity: Per Unit Direct materials $3.70 Direct labor $3.60 Variable overhead $1.40 Supervisor's salary $4.00 Depreciation of special equipment $3.90 Allocated general overhead $4.10 An outside supplier has offered to produce and sell the cupholders to Club Car for $17.10 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 cupholders was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the cupholders were purchased instead of produced internalp $30,800 ($30,800) $25,200 ($25,200)

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