Boston College Operations And Supply Chain Management Assignment Help - Outram Corporation

Question - Outram Corporation is presently making part I14 that is used in one of its products. A total of 8,000
units of this part are produced and used every year. The company's Accounting Department reports
the following costs of producing the part at this level of activity:
PER UNIT
Direct Materials.....................................$5.00
Direct Labor...........................................$2.40
Variable Manufacturing Overhead.......$3.70
Supervisor's Salary...............................$1.80
Depreciation of special equipment....$6.10
Allocated general overhead.................$2.40
An outside supplier has offered to make and sell the part to the company for $14.80 each. If this offer
is accepted, the supervisor's salary and all o ...Read More f the variable costs 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, none of which
would be avoided if the part were purchased instead of produced internally. If management decides to
buy part I14 from the outside supplier rather than to continue making the part, what would be the
annual impact on the company's overall net operating income?
A. Net operating income would decline by $15,200 per year.
B. Net operating income would increase by $15,200 per year.
C. Net operating income would increase by $52,800 per year.
D. Net operating income would decline by $52,800 per year. ...Read Less

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