In addition to the facts given above, assume that the space used to produce Component X could be used to make more of one of the company's other products, generating an additional profit margin of $13,000 per year for that product. What would be the impact on the company's overall net operating income of buying Component X from the outside supplier and using the freed space to make more of the other product?

Riyadh Manufacturing Corporation is presently making Component X that is used in one of its products. A total of 4,000 units of this part are produced and used every year. The company's reports the following costs of producing Component X at this level of activity: Direct Materials per unit $ 1.80 Direct Labor per unit $ 7.80 Variable Manufacturing Overhead per units 7.90 Supervisor's Salary per unit $ 2.30 Depreciation of Special Equipment I$ 6.90 Allocated General Overhead $ 6.60 An outside supplier has offered to produce and sell Component X to the company for $30.80 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 fixed costs of the entire company, none of which would be avoided if Component X were purchased instead of produced internally. The General Manager of Riyadh Manufacturing Corporation is considering his options to make or buy, so he asked you as an expert in the company to advise him on two matters: 1. If management decides to buy Component X from the outside supplier rather than to continue making it , what would be the annual impact on the company's overall net operating income? 2. In addition to the facts given above, assume that the space used to produce Component X could be used to make more of one of the company's other products, generating an additional profit margin of $13,000 per year for that product. What would be the impact on the company's overall net operating income of buying Component X from the outside supplier and using the freed space to make more of the other product