Supler Corporationproduces a part used in the manufacture of one of its products. Theunit product cost is $21, computed as follows:
| |
| Directmaterials | $ | 7 | |
| Directlabor | | 6 | |
| Variablemanufacturing overhead | | 3 | |
| Fixedmanufacturing overhead | | 5 | |
| Unit productcost | $ | 21 | |
|
An outside supplierhas offered to provide the annual requirement of 2,900 of the partsfor only $13 each. The company estimates that 60% of the fixedmanufacturing overhead cost above could be eliminated if the partsare purchased from the outside supplier. Assume that direct laboris an avoidable cost in this decision. Based on these data, thefinancial advantage (disadvantage) of purchasing the parts from theoutside supplier would be:
Multiple Choice
($3) per unit on average
$3 per unit on average
$6 per unit on average
($8) per unit on average
