Part F77 Is Used in One of Wilcutt Corporation's Products

question 104

Essay

Part F77 is used in one of Wilcutt Corporation's products. The company's Accounting Department reports the following costs of producing the 7,000 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 $28.30 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 $9,000 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 F77 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?

---

Definitions:

Embryonic Development

The process during which a fertilized egg divides and undergoes various changes to form a fully developed embryo.

Highly Conserved

Refers to genes, DNA sequences, or proteins that remain relatively unchanged throughout the evolution of different species, indicating their importance in biological functions.

Single-nucleotide Polymorphism

A variation in a single nucleotide that occurs at a specific position in the genome, representing the most common type of genetic variation among humans.

Base-pair Substitution

A type of genetic mutation where one nucleotide pair in the DNA sequence is replaced with a different nucleotide pair.