Reference no: EM131967414
Problem
A total of 11,000 units of Part N29 are internally produced and used every year, and the following is the cost report:
direct material ---------------- $5.90 per unit
direct labor---------------- $1.70 per unit
variable manufacturing overhead---------------- $5.40 per unit
supervisor salary ---------------- $2.60 per unit
depreication for specal equipment ---------------- $3.20 per unit
allocated general overhead---------------- $3.30 per unit
An outside supplier has offered to make the part and sell it to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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. What would be the impact on income for buying part N29 from the supplier?
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