Reference no: EM132583531

Question 1: Your company makes 6,000 units of Part #217 each year. Accounting reports the following costs of producing this part at this level of activity. An outside supplier has offered to produce this part for $29.00 each. If this offer is accepted, the supervisor's salary, all direct and variable costs can be avoided. The equipment has no salvage value. None of the allocated general overhead expenses could be eliminated. How much would be net operating income be changed if the outside suppliers' offer is accepted?

Per Unit

Direct Material                                           $7.00

Direct Labor                                              $6.00

Variable manufacturing overhead                    $8.00

Supervisor's salary                                       $7.60

Depreciation of equipment                               $5.90

Allocated general overhead                                $3.30