Tish Corporation produces a part used in the manufacture of one of its products.The unit product cost is $26,computed as follows:
An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each.The company estimates that 75% 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 per-unit dollar advantage or disadvantage of purchasing from the outside supplier would be:
A)$1 disadvantage
B)$5 advantage
C)$3 advantage
D)$4 disadvantage

Question

Quizplus · Accepted Answer

Because the part could be purchased from the outside supplier for $21,but costs $24 to make internally,purchasing the parts from the outside supplier would yield a $3 advantage.

Tish Corporation Produces a Part Used in the Manufacture of One