Penagos Corporation Is Presently Making Part Z43 That Is Used

question 150

Multiple Choice

Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided.If management decides to buy part Z43 from the outside supplier rather than to continue making the part, what would be the annual financial advantage (disadvantage) ?

• A) ($34,500)
• B) ($30,500)
• C) ($15,500)
• D) ($38,500)

---

Definitions:

Committees of Correspondence

Groups formed in the American colonies to maintain communication with one another as they resisted British policy in the run-up to the American Revolution.

Communications Network

A system of interconnected devices and facilities that enable the transmission of data and messages across long distances.

Local Laws

Regulations and ordinances that are enacted and enforced by local government entities such as cities or counties.

Tea Act

A 1773 British law that lowered the tax on tea to aid the financially troubled British East India Company, leading to the Boston Tea Party and escalating tensions between Britain and the American colonies.