Fillip Corporation makes 5,700 units of part U13 each year. This part is used in
ID: 2474911 • Letter: F
Question
Fillip Corporation makes 5,700 units of part U13 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:
An outside supplier has offered to make and sell the part to the company for $25.10 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 $3,850 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company's other products, generating an additional segment margin of $14,700 per year for that product.
What would be the impact on the company's overall net operating income of buying part U13 from the outside supplier?
Net operating income would decline by $99,180 per year.
Net operating income would increase by $66,430 per year.
Net operating income would increase by $14,700 per year.
Net operating income would decline by $157,320 per year.
Per Unit Direct materials $9.60 Direct labor $7.80 Variable manufacturing overhead $10.20 Supervisor's salary $5.90 Depreciation of special equipment $8.80 Allocated general overhead $8.00Explanation / Answer
Net operating income would increase by $66,430 per year.
How I got my answer:
Make Buy
Direct materials (5,700 units @ $9.60 per unit) $ 54,720
Direct labor (5,700 units @ $7.80 per unit) $44,460
Variable overhead (5,700 units @ $10.20 per unit) $58,140
Supervisor’s salary (5,700 units @ $5.90 per unit) $33,630
Depreciation of special equipment (not relevant) 0
Allocated general overhead (not relevant) 3,850
Outside purchase price (5,700 units @ $25.10 per unit) $143,070
---------------- ----------------
Total cost $194,800 $143,070
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.