Reference no: EM132533811

ALMA Company uses 4,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $70,000 as follows:

Direct materials............................. $20,000

Direct labor....................................14,000

Variable manufacturing overhead.      16,000

Fixed manufacturing overhead......  20,000

Total costs...................................... $70,000

An outside supplier has offered to provide Part X at a price of $ 16 per unit. If ALMA Company stops producing the part internally, 8,000 of the fixed manufacturing overhead would be eliminated.

Required:

Question 1: Prepare analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. What "other related factors" must be considered to determine the above decision?