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Corporation produces a part used in the manufacture of one of its products. The unit product cost of this part is $24, computed as follows:
Corporation produces a part used in the manufacture of one of its products. The unit product cost of this part is $24, computed as follows:
Direct materials | $6 |
Direct labor | 5 |
Variable manufacturing overhead | 3 |
Fixed manufacturing overhead | 10 |
Unit product cost | $24 |
An outside supplier has offered to provide the part for only $20 each. The company estimates that 40% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Based on this data, the financial advantage (disadvantage), per unit, of purchasing the parts from the outside supplier would be:
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