An Outside Supplier Has Offered to Sell the Company All

question 13

Multiple Choice

An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

-What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

• A)$264,000
• B)$(328,000)
• C)$548,000
• D)$(64,000)

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Definitions:

Biopsy

The removal and examination of tissue samples from the body for diagnostic purposes, often to determine the presence or extent of a disease.

Excision

The surgical removal of a foreign body or of tissue.

Microscopic Examination

The detailed analysis of tiny objects or structures using a microscope to observe features not visible to the naked eye.

Cryosurgery

A surgical technique that uses extreme cold, often liquid nitrogen, to destroy abnormal or diseased tissue, including skin lesions.