Penagos Corporation is presently making part Z43 that is used in one of its prod

Question

Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 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: Direct materials Direct labor Variable overhead Supervisor's salary Depreciation of special equipment Allocated general overhead Per Unit s 1.10 $ 3.10 $6.90 5.80 $ 5.20 $ 5.60 An outside supplier has offered to produce and sell the part to the company for $20.80 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 $4,000 of these allocated general overhead costs would be

Explanation / Answer

Prepare decision making :

so answer is d) $8500

Making Buying Direct material 5500 Direct labour 15500 Variable overhead 34500 supervisor's salary 29000 Avoidable overhead 4000 Purchase cost 104000 Total 88500 104000

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