Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is
A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $40,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $30,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would: Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost per part $3.50 9.50 2.50 $24.509.00 An outside supplier has offered to sell 26,500 units of part S-6 each year to Han Products for $22.00 per part. If Han Products accepts this offer, the facilities now being used to manufacture part $6 could be rented to another company at an annual rental of $84,000. However, Han Products has determined that 30\% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Required: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Round "Total cosis" and final answer to the nearest whole dollar amount.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started