Sharp Company produces 8,000 parts each year, which are used in the production o

Question

Sharp Company produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows:

Variable production costs                   $16.00

Fixed production costs                       20.00

Unit product cost                                $36.00

The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth.

If the parts are purchased from the outside supplier, what is the annual impact on the company's operating income? (Worth 3.5 pts.) SHOW ALL WORK FOR CREDIT!

What are some of the other qualitative or quantitative factors the company may want to consider before purchasing the part from an outside supplier? (Worth 1.5 pts.; must list 3 factors for full points)

Explanation / Answer

Companies operating incoem will decreae by $ 7 per unit ie 8000 * 7 => $56000 xtra expense

As in house cost was $36 and if purchases from outside then 28 + reduced fixed cost ie 15

so total is 43

so earlier it was 36 and now 43 hece loss of $ 7 per unit

some of the other qualitative or quantitative factors the company may want to consider before purchasing the part from an outside supplier are as follows;:

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