NG, Inc Currently Buys 9,000 Subcomponents from an Outside Supplier at at $10

question 28

Multiple Choice

N.G., Inc. currently buys 9,000 subcomponents from an outside supplier at $10 each. The company has excess capacity, which it sublets to another company for $20,000 per year. If the company were to use the idle capacity to produce the subcomponent internally, it would incur variable production costs of $6 per unit, and it would hire a new supervisor for $15,000 per year. Other fixed overhead costs would not change, but the average overhead cost per subcomponent unit would be $2. What is the advantage or disadvantage (in dollars) if N.G. makes the subcomponent instead of continuing to buy outside and subletting the excess capacity?

• A) $6,000 disadvantage
• B) $21,000 disadvantage
• C) $1,000 advantage
• D) $21,000 advantage

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