Motheo (Pty) Ltd uses 5000units of part X each year as a component in the assembly of one of its products. The company is currently producing Part X internally at a total cost of R80 000 as follows:

Direct material R18 000

Direct Labour R20 000

Variable Manufacturing Overhead R12 000

Fixed Manufacturing Overhead R30 000

Total Costs R80 000

An outside supplier has offered to provide Part X at a price of R13 per unit. If Motheo

The company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated.

Required

Prepare an analysis showing the annual advantage or disadvantage of accepting the outside suppliers offer.