Reference no: EM132552605
Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as follows:
Direct materials $18,000
Direct labor............ 20,000
Variable manufacturing overhead....... 12,000
Fixed manufacturing overhead 30,000
Total costs $80,000
An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated.
Question 1: The annual advantage or disadvantage of buying the product will be
Select one:
a. Advantage of $4,000
b. Advantage of $8,000
c. Disadvantage of $5,000
d. Disadvantage of $22,500
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