Recher Corporation Uses Part Q89 in One of Its Products

question 137

Essay

Recher Corporation uses part Q89 in one of its products.The company's Accounting Department reports the following costs of producing the 8,000 units of the part that are needed every year. An outside supplier has offered to make the part and sell it to the company for $27.60 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 $3,000 of these allocated general overhead costs would be avoided.In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,000 per year for that product.

Required:
a.Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company.
b.Which alternative should the company choose?

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Definitions:

Out-Group Members

Individuals who are not part of a specific social group and are often viewed as different or excluded from mainstream group activities.

In-Group

A social group to which an individual identifies as being a member, often characterized by a sense of belonging and shared interests or values.

Privileges

Special rights or advantages given to a particular person or group.

LMX Theory

A leadership model focusing on the dyadic relationships between leaders and followers, emphasizing the importance of high-quality exchanges for leadership effectiveness.