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The Abbott Company currently makes 10,000 units annually of a part it utilizes in the products it manufactures. Current costs for the part are as follows:

Direct materials $16.25
Direct labor 11.85
Variable manufacturing overhead 6.30
Fixed manufacturing overhead 10.20
Total $44.60

If the company decides to buy the part the empty warehouse space could be rented for $35,000 annually. In addition, half of the fixed manufacturing overhead costs would be avoided if the company decides to buy the part. The company has an offer from a manufacturer to produce the part for $42 per unit. If the company decides to accept the offer the net advantage or disadvantage to the company's annual net income would be:

 

Accounting Basics, Accounting

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  • Reference No.:- M949005

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