fime remaining: 1:02:37 Ethridge Corporation is presently making part H25 that i

Question

fime remaining: 1:02:37 Ethridge Corporation is presently making part H25 that is used in one of its products. A total of 9,000 units of this part are produced and used every year. The company's Accounting Depertment reports the following costs of producing the part at this level of activity Direct material. Direct labor Per Unit $1.90 $7.70 Supervisor's salary... Depreciation of special equipment.... Allocated general overhea.$6.30 $1.90 $2.90 An outside supplier has offered to make and sell the part to the company for $15.40 each If this value or other use. The allbcated general making the part, what would be the annual impact on the company's overall net operating income? offer is accepted, the supervisor's salary and nvoided. The special equipment used to make the part was purchased many years ago and has no salvage overhead represents fixed costs of the entire company, none of which would be avoided if the part ead of produced internally. If management decides to buy part H25 from the outside supplier rather than to continue Alab O Net operating income would decline by $58,500 per year O Net operating income would increase by $24300 per O Net operating income would decline by $24,300 per year O Net operating income would increase by $58,500 per year year Alabd

Explanation / Answer

Prepare differential analysis :

so answer is c) Net operating income would decline by $24300 per year

Make Buy Direct material 1.90 Direct labour 7.70 Variable manufacturing overhead 1.20 Supervisor's salary 1.90 Purchase cost 15.40 Relevant cost per unit 12.70 15.40 Unit 9000 9000 Relevant cost 114300 138600

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