Carley Company produces 2,000 parts per year, which are used in the assembly of one of its
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Question:
Carley Company produces 2,000 parts per year, which are used in the assembly of one of its products. The variable cost of manufacturing each part is $64 and the fixed manufacturing costs total $36 per unit for a total unit product cost of $100.The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated
Part (a)
Which costs are relevant to this decision? Why?
Part (b)
What would the annual impact be on the company's net operating income as a result of buying the part from the outside supplier?
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