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  3. assume a company is considering buying 10,000 unit

Assume a company is considering buying 10,000 units of a component part rather than making...

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Accounting

Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $42.00 per unit. The companys accounting system reports the following costs of making the part:

Per Unit 10,000 Units per Year
Direct materials $ 16 $ 160,000
Direct labor 12 120,000
Variable manufacturing overhead 2 20,000
Fixed manufacturing overhead, traceable 8 80,000
Fixed manufacturing overhead, allocated 4 40,000
Total cost $ 42 $ 420,000

One-halfs of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?

Multiple Choice

  • $(40,000)

  • $16,000

  • $(80,000)

  • $80,000

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