145. Allzine Ltd currently buys 19 000 subcomponents from an outside supplier at $15 each. The

company has excess capacity, which it sublets to another company for $50 000 per year. If the

company were to use the idle capacity to produce the subcomponent internally, it would incur

variable production costs of $12 per unit and it would hire a new supervisor for $30 000 per year.

Other fixed overhead costs would not change, but the average overhead cost per subcomponent

unit would be $2. What is the advantage or disadvantage (in dollars) if Allzine makes the

subcomponent instead of continuing to buy outside and subletting the excess capacity?

a. $77 000 advantage

b. $15 000 disadvantage

*c. $23 000 advantage

d. $61 000 disadvantage

Answer rating: 100% (QA)

Number of subcomponent 19000 Purchase price per unit 15 Rent from subletting Opportunity cost 5000... View the full answer