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Mcfarlain Corporation is presently making part U98 that is used in one of its products....

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Accounting

Mcfarlain Corporation is presently making part U98 that is used in one of its products. A total of 15,000 units of this part are
produced and used every year. The company's Accounting Department reports the following costs of producing the part at this
level of activity:
An outside supplier has offered to produce and sell the part to the company for $10.80 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, none of which would be avoided if the part were purchased instead of produced internally.
In addition to the facts given above, assume that the space used to produce part U98 could be used to make more of one of the
company's other products, generating an additional segment margin of $22,200 per year for that product. What would be the
financial advantage (disadvantage) of buying part U98 from the outside supplier and using the freed space to make more of the
other product?
Multiple Choice
($18,300)
)
$22,200
($7,800)
image

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