Question

Variable manufacturing cost $ 15 Fixed manufacturing cost 12 Total manufacturing cost $ 27 The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the total fixed costs incurred in producing the part can be avoided. The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:

Answer 1

there is a financial advantage of $3,000 increase

Step-by-step explanation:

The computation of the annual financial advantage (disadvantage) for the company is shown below;

Particulars Making Purchasing

Variable cost $15 $0

Add; fixed cost $12 $4

($12 × 2 ÷ 3)

Add: purchasing cost $0 $20

Total cost per unit $27 $24

Total cost for 1000 units $27,000 $24,0000

SO here we can see that there is a financial advantage of $3,000 increase

= $27,000 - $24,00

= $3,000