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Your Company makes 4,000 units of part X each year. This part is used in one of the company's products. The company's Accounting Department
Your Company makes 4,000 units of part X each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $6.20 Direct labor $4.40 Variable MOH $6.80 Supervisor's Salary $2.50 Depreciation $8.60 Other fixed costs $7.00 $35.50 An outside supplier has offered to make and sell the part to the company for $21.60 each. If this offer is accepted, the supervisor's salary 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 other fixed costs represent fixed costs of the entire company. If the outside supplier's offer were accepted, only $3,000 of these costs would be avoided. In addition, the space used to produce the part would be used to make more of one of the company's other products, generating an additional segment margin of $13,000 per year for that product. What would be the impact on the company's overall net operating income of buying the part from the outside supplier?
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