A company is considering buying a part that they currently make for one of their products. The costs of producing the 7,400 units of the part that are needed every year are as follows.

	Per Unit
Direct materials	$	7.50
Direct labor	$	4.20
Variable overhead	$	8.30
Supervisor's salary	$	3.20
Depreciation of special equipment	$	2.70
Allocated general overhead	$	1.40

An outside supplier has offered to make the part and sell it to the company for $27.00 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 $3,400 of these allocated general overhead costs would be avoided. In addition, the space used to produce the part could be used to make more of one of the company's other products, generating an additional segment margin of $18,000 per year for that product.

Required:

a. Calculate the financial advantage (disadvantage) of accepting the supplier's offer to purchase the part.

b. Should the company make or buy the part?

A company is considering buying a part that they currently make for one of their products. The costs of producing the 7,400 units of the part that are needed every year are as follows. Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $ 7.50 $ 4.20 $ 8.30 $ 3.20 $ 2.70 $ 1.40 An outside supplier has offered to make the part and sell it to the company for $27.00 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 $3,400 of these allocated general overhead costs would be avoided. In addition, the space used to produce the part could be used to make more of one of the company's other products, generating an additional segment margin of $18,000 per year for that product. Required: a. Calculate the financial advantage (disadvantage) of accepting the supplier's offer to purchase the part. Financial advantage (disadvantage) in b. Should the company make or buy the part? The company should the part