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Cube Manufacturing usually produces its own parts for assembly. The following monthly data are available for one of the parts, Part A31: Cube needs 2,000 units of Part A31 every month. An outside supp

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CubeCube Manufacturing usually produces its own parts for assembly. The following monthly data are available for one of the parts, Part A31: Cube needs 2,000 units of Part A31 every month. An outside supplier has offered to provide the parts at $4.20 per unit. Cube's cost of producing the parts is $5.40 per unit. Cube has determined that it will save $2,400 a month in salaries and other overhead costs if it no longer produces the parts.Required: If Cube buys Part A31 from the outside supplier, what will be the effect on the company's monthly net income?Solution:Cube buys Part A31 from the outside supplier.The monthly usage of part A31 is 2000 units.The cost of the purchase is $4.20 per unit.Therefore, the monthly purchase cost = 2000 × 4.20 = $8400.Cube's cost of producing the parts is $5.40 per unit.Therefore, the monthly production cost = 2000 × 5.4 = $10,800.Cube will save $2400 per month if it no longer produces the parts.The net income per month if Cube buys Part A31 from the outside supplier= The money saved due to no longer producing the parts + Money paid to the supplier for buying parts= $2400 + $8400 = $10800.The monthly net income will be zero if Cube buys Part A31 from the outside supplier.The company will not earn or lose any money.

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