Lindon Company Uses 5,000 Units of Part X Each Year

question 37

Essay

Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products.The company is presently producing Part X internally at a total cost of $80,000 as follows:

An outside supplier has offered to provide Part X at a price of $13 per unit.If Lindon Company stops producing the part internally,one-third of the fixed manufacturing overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.