Reference no: EM133067847

Question - XYZ Industries manufactures 16,000 components per year. The total manufacturing costs for this level of production were determined as follows:

Direct Materials $104,000

Direct Labor $196,000

Variable manufacturing overhead $26,000

Fixed manufacturing overhead $75,000

An outside supplier has offered to produce all 16,000 units of the component and sell it to XYZ for $11 per unit.

Additional information:

If XYZ purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $57,000 per year.

XYZ has determined that no fixed manufacturing overhead could be avoided by purchasing the component from the supplier.

Required - What is the total annual financial impact of purchasing the component from the supplier instead of manufacturing it themselves?