Sewtfi951 Corporation makes an extra large part to use in one its fabulous products. A total of 14,500 units of this extra large part are produced and used every year. The company's costs of producing the extra large part at this level of activity are below: Per Unit
Direct materials $3.20
Direct labor $7.80
Variable manufacturing overhead $8.30
Supervisor's salary $3.70
Depreciation of special equipment $2.10
Allocated general overhead $7.30
An outside supplier has offered to make the extra large part and sell it to Sewt1951 for $32.30 each If this offer is accepted the supervisor's salary and all of the variable costs, including the direct labor, can be avoided The special equipment used to make the extra large part has no salvage value or other use The allocated general overhead representa fixed costs of the entire Sewt1951 company. none of which would be avoided at the part were purchased instead of produced internally. In addition, the space used to make the extra large part could be used to make more of one of the company's other fabulous products, generating an additional segment margin of $34,500 per year for that product
What would be the annual financial advantage (disadvantage) for Sewt1951 Corp as a result of buying the extra large part from the outside supplier?