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Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 8,300 units of the part that are needed every year. Per Unit Direct materials $ 7. 10 Direct labor $ 4. 00 Variable overhead $ 7. 90 Supervisor's salary $ 3. 00 Depreciation of special equipment $ 2. 60 Allocated general overhead $ 1. 40 An outside supplier has offered to make the part and sell it to the company for $25. 00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, 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. If the outside supplier's offer were accepted, only $2,800 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,400 per year for that product. Required: a. Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company. B. Which alternative should the company choose?
Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of producing the 8,300 units of the part that are needed every year. Per Unit Direct materials $ 7. 10 Direct labor $ 4. 00 Variable overhead $ 7. 90 Supervisor's salary $ 3. 00 Depreciation of special equipment $ 2. 60 Allocated general overhead $ 1. 40 An outside supplier has offered to make the part and sell it to the company for $25. 00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, 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. If the outside supplier's offer were accepted, only $2,800 of these allocated general overhead costs would be avoided. In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,400 per year for that product. Required: a. Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company. B. Which alternative should the company choose?
a. The Totalfinancial impactis $25200. b. The total financial impact of $25,200 favors the alternative of buying the part from the supplier.To analyze the financial impact of buying part Q89 from the supplier instead of producing it internally, we need to compare the costs of the two alternatives. Let's calculate the financial impact and determine the preferred alternative:a. Financial impact report:Cost of producingpart Q89 internally:Direct materials: $7.10 per unit × 8,300 units = $59,230Direct labor: $4.00 per unit × 8,300 units = $33,200Variable overhead: $7.90 per unit × 8,300 units = $65,770Supervisor's salary: $3.00 per unit × 8,300 units = $24,900Depreciation of special equipment: $2.60 per unit × 8,300 units = $21,580Allocated general overhead: $1.40 per unit × 8,300 units = $11,620Total cost of producing internally = $59,230 + $33,200 + $65,770 + $24,900 + $21,580 + $11,620 = $216,300Cost of buying part Q89 from the supplier:Cost per unit from the supplier: $25.00 per unit × 8,300 units = $207,500Additional segment margin from using the space for other products: $16,400Total financial impact:Cost savings by buying from the supplier = Cost of producing internally - Cost of buying from the supplier= $216,300 - $207,500 = $8,800Additionalsegmentmargin = $16,400Total financial impact = Cost savings + Additional segment margin= $8,800 + $16,400 = $25,200b. Based on the financial impact analysis, the company should choose to buy part Q89 from the supplier instead of producing it internally. The financial impact shows a cost savings of $8,800 by purchasing from the supplier and an additional segment margin of $16,400 by utilizing the space for otherproducts. Therefore, the total financial impact of $25,200 favors the alternative of buying the part from the supplier.For more aboutfinancial impact:brainly.com/question/30353261#SPJ4...