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.

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Definitions:

Intellectual Aspects

Components or features related to the ability to think, reason, and understand.

Emotional Aspects

Emotional aspects refer to the components of experiences and consciousness that are related to feelings, mood, and emotional states.

Data Collection

The systematic approach to gather information from a variety of sources to get a complete and accurate picture of an area of interest.

Personal Construct Theory

A psychological theory positing that individuals organize their experiences through a set of personal constructs, which are used to predict and control events.