Mcfarlain Corporation is presently making part U$98$ that is used in one of its products. A total of $15,000$ units of this part are

produced and used every year. The company's Accounting Department reports the following costs of producing the part at this

level of activity:

An outside supplier has offered to produce and sell the part to the company for $$10\mathrm{.}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 the part were purchased instead of produced internally.

In addition to the facts given above, assume that the space used to produce part U$98$ could be used to make more of one of the

company's other products, generating an additional segment margin of $$22,200$ per year for that product. What would be the

financial advantage $($disadvantage$)$ of buying part U$98$ from the outside supplier and using the freed space to make more of the

other product?

Multiple Choice

$($$$18,300)$

$)$

$$22,200$

$($$$7,800)$