Part N19 Is Used by Malouf Corporation to Make One

question 58

Multiple Choice

Part N19 is used by Malouf Corporation to make one of its products.A total of 7,000 units of this part are produced and used every year.The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make the part and sell it to the company for $24.50 each.If this offer is accepted,the supervisor's salary and all of the variable costs,including the 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,none of which would be avoided if the part were purchased instead of produced internally.In addition,the space used to make part N19 could be used to make more of one of the company's other products,generating an additional segment margin of $25,000 per year for that product.What would be the impact on the company's overall net operating income of buying part N19 from the outside supplier?

• A)Net operating income would decline by $21,900 per year.
• B)Net operating income would decline by $60,700 per year.
• C)Net operating income would decline by $10,700 per year.
• D)Net operating income would increase by $25,000 per year.

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Definitions:

Genes

Basic units of heredity that are made up of DNA and determine specific traits in organisms.

Mitosis

The process of cell division in eukaryotic cells that results in two genetically identical daughter cells.

Genetic Material

DNA or RNA molecules that carry the genetic instructions used in the growth, development, functioning, and reproduction of living organisms.

Fertilized Egg

A cell formed by the combining of a male and female gamete (sperm and egg) which then begins cell division to develop into an embryo.