An internally produced part is used by a company in making one of its products. A total of 21,500 units of this part are produced and used every year. The Accounting Department reports:
Direct materials
Direct labor
Variable manufacturing overhead
Supervisor's salary
Depreciation of special equipment
Allocated general overhead
Per Unit
$ 4.60
$9.20
$ 9.70
$5.10
$ 3.50
$ 8.70
An outside vendor has offered to sell the part to the company for $31.50 each. If this offer is accepted, the supervisor's salary and all of the variable costs can be avoided. The special equipment used to make
the part has no salvage value or other use. None of the allocated general overhead would be avoided if the part were purchased. Also, the space used to make the part could be used to make more of one of
the company's other products, generating an additional segment margin of $33,500 per year. The financial advantage (disadvantage) for the company as a result of buying the part should be
Multiple Choice
($28,850)
($127,750)
$33,500
($206,400)
