Question

ler corporation produces a part used in the manufacture of one of its products. the unit product cost is $20, computed as follows: direct materials $ 6 direct labor 7 variable manufacturing overhead 3 fixed manufacturing overhead 4 unit product cost $ 20 an outside supplier has offered to provide the annual requirement of 7,200 of the parts for only $13 each. the company estimates that 50% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. assume that direct labor is an avoidable cost in this decision. based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be:

Answer 1

The financial advantage of purchasing the parts from the outside supplier would be $50,400.

The financial advantage (disadvantage) of purchasing the parts from the outside supplier can be calculated by comparing the total cost of producing the parts internally versus purchasing them from the supplier.

If the company produces the parts internally, the unit product cost is $20. However, if they purchase the parts from the supplier, the cost per unit is $13.

Since the company needs 7,200 parts, the total cost of producing the parts internally would be 7,200 * $20 = $144,000. On the other hand, purchasing the parts from the supplier would cost 7,200 * $13 = $93,600.

Therefore, the financial advantage of purchasing the parts from the outside supplier would be $144,000 - $93,600 = $50,400.