Supler Corporation produces a part used in the manufacture of one of its products.The unit product cost is $18, computed as follows: An outside supplier has offered to provide the annual requirement of 4,000 of the parts for only $14 each.The company estimates that 60% 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:

A) ($1) per unit on average
B) $1 per unit on average
C) $2 per unit on average
D) ($4) per unit on average

Question

Supler Corporation produces a part used in the manufacture of one of its products.The unit product cost is $18, computed as follows:

An outside supplier has offered to provide the annual requirement of 4,000 of the parts for only $14 each.The company estimates that 60% 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:

A) ($1) per unit on average
B) $1 per unit on average
C) $2 per unit on average
D) ($4) per unit on average

Daisy Gomez · Accepted Answer

Final Answer : C, Explanation :    Because the part could be purchased from the outside supplier for $14, but costs $16 to make internally, purchasing the parts from the outside supplier would yield a $2 advantage.

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