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Pitkin company produces a part used in the manufacture of one of its products. The...

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Accounting

Pitkin company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33. (based on 10,000 units) is computed as follows:

Direct Materials $12
Direct Labour 8
Variable Manufacturing overhead 3
Fixed manufacturing overhead 10
Unit product cost 33

An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 20% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

a $40,000 advantage to making

b both options cost the same

c $60,000 advantage to purchasing outside

d $40,000 advantage to purchasing outside

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