Part O43 is used in one of Scheetz Corporation\'s products. The company\'s Accou
ID: 2574902 • Letter: P
Question
Part O43 is used in one of Scheetz Corporation's products. The company's Accounting Department reports the following costs of producing the 16,800 units of the part that are needed every year.
An outside supplier has offered to make the part and sell it to the company for $33.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including 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. If the outside supplier's offer were accepted, only $22,800 of these allocated general overhead costs would be avoided.
Prepare a report that shows the effect on the company's total net operating income of buying part O43 from the supplier rather than continuing to make it inside the company. (Input the amount as a positive value. Omit the "$" sign in your response.)
Which alternative should the company choose?
Part O43 is used in one of Scheetz Corporation's products. The company's Accounting Department reports the following costs of producing the 16,800 units of the part that are needed every year.
Explanation / Answer
Make Buy Difference Direct materials 67200 67200 Direct labor 78960 78960 Variable overhead 129360 129360 Supervisor's salary 141120 141120 Allocated general overhead 22800 22800 Outside purchase price 554400 -554400 Total cost 439440 554400 -114960 Net operating income would decrease by $114960 b Make