Question

Part S51 is used in one of Haberkorn Corporation's products. The company makes 12,000 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 UnitDirect materials $ 6.30Direct labor $ 5.70Variable manufacturing overhead $ 4.80Supervisor's salary $ 7.00Depreciation of special equipment $ 8.60Allocated general overhead $ 7.20An outside supplier has offered to produce this part and sell it to the company for $37.70 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 $17,000 of these allocated general overhead costs would be avoided.The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:Multiple Choice($39,800)($22,800)($149,800)($5,800)

Answer 1

Answer:

($149,800)

Explanation:

The computation is shown below:

In case of making cost, the total cost is

= (Total number of units made × Direct material per unit + Direct labor per unit + Variable manufacturing overhead per unit + Supervisor salary per unit )+ Allocated general overhead

= (12,000 units × $6.30 + $5.70 + $4.80 + $7) + $17,000

= 12,000 units × $23.8 + $17,000

= $302,600

And, the buying cost is

= 12,000 units × $37.70

= $452,400

so the financial disadvantage is

= $302,600 - $452,400

= ($149,800)