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 Year