Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 8,900 units of the part that are needed every year.

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Direct materials

Direct labor

Variable overhead

Supervisor's salary

Depreciation of special

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Allocated general overhead

72 980

40.940

80 990

30,260

25.810

14.240

An outside supplier has offered to make the part and sell it to the company for $28.00 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 $4,100 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,300 per year for that product.

Which one is NOT correct?

Multiple Choice

C

According to the differential analysis, the Recher corporation will be better off by making the part.

Since the space has an alternative use, an additional segment margin of $16,300 must also be considered in the decision.

Out of allocated general overhead, $10,140 are not relevant costs when deciding whether or not to make or buy parts.

An additional segment margin of $16,300 should be considered as opportunity costs if firm decides to make parts. Also, opportunity costs, $16,300 should be recorded on the book.