Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Part T00 is used in one of Able Corporation's products. The company makes 6,000 units of this part each year. The company's Accounting Department reports

Part T00 is used in one of Able Corporation's products. The company makes 6,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

....................................PER UNIT

Direct materials .......... $1.40

Direct labor................$2.40

Variable Manu overhead .. $7.20

Supervisors salary .......$3.60

Depreciation of special equipment $8.90

Allocated general overhead ..... $4.50

An outside supplier has offered to produce this part and sell it to the company for $16.10 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. If the outside supplier's offer were accepted, only $6,000 of these allocated general overhead costs would be avoided.

If management decides to buy part T00 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Applied Quantitative Finance

Authors: W.; T. Kleinkow; G. Stahl Hardle

1st Edition

3540434607, 978-3540434603

More Books

Students also viewed these Finance questions