Canvas XCO Determine the annual financial impact of buying a part from the outside supplier. A total of 21.500 units of this part are produced and used every year. The costs of producing the part at this level of activity are: Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit $4.60 $9.20 $9.70 $5.10 $3.50 $8.70 An outside supplier has offered to make the part and sell it to the company for $31.50 per unit. If production is outsourced, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally. Also, if the production of the part is outsourced, the factory space could be used to make more of one of the company's other products, generating an additional segment margin of $33,500 per year for that other product. Canvas 1440 Supervisor's salary Depreciation of special equipment Allocated general overhead $5.10 $3.50 $8.70 An outside supplier has offered to make the part and sell it to the company for $31.50 per unit. If production is outsourced, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally. Also, if the production of the part is outsourced, the factory space could be used to make more of one of the company's other products, generating an additional segment margin of $33.500 per year for that other product. ($28.850) ($127,750) ($206,400) $33,500 Previous Next