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

question 128

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:

Apparent Authority

The appearance or assumption of authority based on the actions or statements of the principal, leading third parties to believe an agent has authority to act.

Actual Authority

A legal concept where a party is officially granted the power to act on behalf of another, particularly in a business setting.

Implied Authority

The power of an agent to act on behalf of a principal, assumed to be granted due to the nature of the relationship, without explicit consent.

Actual Authority

The specific powers that a principal explicitly grants to an agent to act on their behalf.