Part A42 Is Used by Elgin Corporation to Make One

question 132

Multiple Choice

Part A42 is used by Elgin Corporation to make one of its products.A total of 16, 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 make the part and sell it to the company for $30.40 each.If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally.In addition, the space used to make part A42 could be used to make more of one of the company's other products, generating an additional segment margin of $23, 000 per year for that product.What would be the impact on the company's overall net operating income of buying part A42 from the outside supplier?

• A)Net operating income would decrease by $23, 400 per year.
• B)Net operating income would decrease by $143, 400 per year.
• C)Net operating income would increase by $23, 000 per year.
• D)Net operating income would decrease by $189, 400 per year.

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Definitions:

Mood Disorders

A category of mental health disorders characterized by persistent alterations in mood or emotional state, including depression and bipolar disorder.

Serotonin

A neurotransmitter involved in the regulation of mood, appetite, and sleep, among other functions.

Norepinephrine

A neurotransmitter and hormone that plays a key role in the body's fight or flight response, affecting heart rate, blood pressure, and blood sugar levels.

Psychoactive Substances

Chemicals that alter a person's mental state by affecting the functioning of the brain and nervous system.