Answer:
Financial advantage of accepting the outside supplier’s offer= $23,000
Explanation:
The relevant cash flow from the accepting the offer of the outside suppliers include
Extra variable cost of buying
Savings in direct fixed manufacturing overhead
Gains from annual rental income from facility
Unit variable cost of making: 3.5+ 10+ 2.50 =$16
Direct fixed manufacturing overhead (1/3× 12× 27,000)= 108,000.00
$
Variable cost of external purchase (22× 27,000) 594000
Variable cost of making (16× 27,000) <u>(432000
)</u>
Extra variable cost of buying (162000
)
Savings in manufacturing cost 108,000
Revenue from rental charge <u> 77,000</u>
Net financial advantage from buying <u> 23000
</u>
Financial advantage of accepting the outside supplier’s offer= $23,000
