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Question No. 5.15 Marks: BATA Corporation uses part X in one of its products. The company's Accounting Department reports the following costs of producing the 10,000 units of the part that are needed every year. Cost Per Unit Direct materials $12 Direct labor $10 Variable overhead SA Supervisor's salary $2 Depreciation of special equipment $15 Allocated general overhead 52 An outside supplier has offered to sell that part to the company for 540 per unit. If this offer is accepted, the supervisor's salary and all of 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. If the outside supplier's offer was accepted, only 50 of these allocated general overhead costs would be avoided. In addition, the space used to produce part X could be used to make more of one of the company's other products, generating an additional revenue of $150,000 per year. Required: a) Prepare a report that shows the effect on the company's total net operating income of buying party from the supplier rather than continuing to make it inside the company b) Which alternative should the company choose, and why? Answer Cost Make Buy Page 6 of 7