Part A42 is used by Elgin Corporation produced and used every year. The company\
ID: 2501478 • Letter: P
Question
Part A42 is used by Elgin Corporation produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make the part and sell it to the company for $36.00 each if this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be special equipment used to make the part was purchased many years ago and has no salvage value or other use The allocated genera, overhead represents fixed costs of the entire company. none of which would be avoided if the part where purchased instead of produced intenally. in addition, the space used to make part A42 could be used to make more of one of the company's other products. generating an additional an segment margin of $30000 per year for the What would be the company's overall net operating income of buying part A42 from the outside supplier?Explanation / Answer
Relevant cost of making = Direct Material + Direct Labor + Variable manufacturing overhead + Supervisors salary + Oppurtunity cost
Relevant cost of making = 8.90*23000 + 10.30*23000 + 6.90*23000 + 7*23000 + 30000
Relevant cost of making = $ 791300
Cost of Buying = Purchase price * no of Unit
Cost of Buying = 36*23000
Cost of Buying = $ 828000
Impact on companys overall net operating income of buying part from outside = Relevant cost of making - Cost of Buying
Impact on companys overall net operating income of buying part from outside = 791300 - 828000
Impact on companys overall net operating income of buying part from outside = -36700
Answer
Impact on companys overall net operating income of buying part from outside supplier would decrease net income by $ 36700