Penagos Corporation Is Presently Making Part Z43 That Is Used

question 80

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.
-In addition to the facts given above,assume that the space used to produce part Z43 could be used to make more of one of the company's other products,generating an additional segment margin of $24,000 per year for that product.What would be the annual financial advantage (disadvantage) of buying part Z43 from the outside supplier and using the freed space to make more of the other product?

• A) ($10,500)
• B) ($58,500)
• C) $24,000
• D) $8,500

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Definitions:

Positive Reinforcer

A stimulus or event that increases the likelihood of a behavior being repeated when it is presented following that behavior.

Information Flow

The movement and exchange of information within and between organizations, systems, or processes.

Inventory System

An organized method for managing and controlling the ordering, storage, and use of components that a company will use in the production of the items it will sell as well as the management of the finished products that are for sale.

Understocking

The condition of having insufficient inventory to meet demand, leading to potential lost sales and customer dissatisfaction.