Concept related to overall net operating income

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Reference no: EM13146895

An outside supplier has offered to make and sell the part to the company for $25.50 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 $18,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part W28 would be used to make more of one of the company's other products, generating an additional segment margin of $12,000 per year for that product.

What would be the impact on the company's overall net operating income of buying part W28 from the outside supplier?

Reference no: EM13146895

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