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A Company makes 5,000 units of Part A100 each year. This part is used in one of the company's products. The company's Accounting Department reports
A Company makes 5,000 units of Part A100 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity Per Direct materials Unit Direct labor $5.80 $7.60 Variable manufacturing overhead $.90 Supervisor's salary $2.10 Depreciation of special equipment $4.10 Allocated general overhead $2.00 An outside supplier has offered to make and sell the part to the company for $20.00 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 fed costs of the entire company. If the outside supplier's offer were accepted, only $1,000 (or $0.20 per unit since there are 5,000 units) of these allocated general overhead costs would be avoided. The annual financial advantage (disadvantage) for the company as a result of buying Part A100 from the outside supplier should be: O $15,000 ADVANTAGE O $17,000 ADVANTAGE O ($15,000) DISADVANTAGE ($17,000) DISADVANTAGE
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