Lindon Company uses 5, 000 units of Part X each year as a component in the assembly of one of its products.The company is presently producing Part X internally at a total cost of $80, 000 as follows: An outside supplier has offered to provide Part X at a price of $13 per unit.If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.

Question

Lindon Company uses 5, 000 units of Part X each year as a component in the assembly of one of its products.The company is presently producing Part X internally at a total cost of $80, 000 as follows:  An outside supplier has offered to provide Part X at a price of $13 per unit.If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.

Quizplus · Accepted Answer

The Answer of Lindon Company uses 5, 000 units of Part X each year as a component in the assembly of one of its products.The company is presently producing Part X internally at a total cost of $80, 000 as follows:  An outside supplier has offered to provide Part X at a price of $13 per unit.If Lindon Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.

Lindon Company Uses 5, 000 Units of Part X Each