Part O43 Is Used in One of Scheetz Corporation's Products

question 31

Essay

Part O43 is used in one of Scheetz Corporation's products.The company's Accounting Department reports the following costs of producing the 6,000 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 $26.40 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 $1,000 of these allocated general overhead costs would be avoided.
Required:
a.Prepare a report that shows the effect on the company's total net operating income of buying part O43 from the supplier rather than continuing to make it inside the company.
b.Which alternative should the company choose?

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Definitions:

Spanish-Canadian

Spanish-Canadian refers to individuals or cultural aspects that blend elements of Spanish and Canadian heritages, highlighting the multicultural aspect of Canadian society.

Stereotyping

The oversimplified and generalized conception, opinion, or image about a particular group of people, often disregarding individual differences.

Prejudice

A strongly held option about some topic or group of people.

Cultural Backgrounds

are the socio-economic, ethnic, and cultural environments and experiences that shape an individual’s personality, beliefs, values, and behaviors.