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an outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. the company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. assume that all other costs are avoidable costs in this decision. based on these data, the per-unit dollar advantage or disadvantage of purchasing from the outside supplier would be:

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The per-unit dollar advantage or disadvantage (Financial advantage) of purchasing from the outside supplier for Xavier Manufacturing would be $3 advantage (C).

From the case, we have some following informations:

Insite production costs:

DM = $10

DL = $7

VOH = $1

FOH = $8

Outside supplier:

Annual request = 5,000

Price = $21

Discounted FOH = 75%

Discounted FOH = 75% x $8

Discounted FOH = $2

To find the financial advantage for Xavier Manufacturing, we have to find whether the relevant cost per unit to produce the product is higher or lower than the price offered by the outside supplier.

We have to find the relevant cost per unit by adding all of the costs Xavier will spend to produce the product by itself.

Since FOH will be discounted if Xavier purchase the product from outside supplier, we need to find the remaining FOH cost that will be burdened by Xavier.

Remaining FOH cost = FOH - discounted FOH

Remaining FOH cost = $8 - $2

Remaining FOH cost = $6

Relevant Cost per unit = DM + DL + VOH + Remaining FOH

Relevant cost per unit = $10 + $7 + $1 + $6

Relevant cost per unit = $24

After knowing the relevant cost per unit, we can find the financial advantage for Xavier is:

Financial Advantage = Relevant cost per unit - Price offered by outside supplier

Financial advantage = $24 - $21

Financial advantage = $3 (advantage)

Learn more about Financial Advantage here: https://brainly.com/question/1485220

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Complete Question:

Xavier Manufacturing produces a part used in the manufacture of one of its products. The unit product cost is $26, computed as follows:

Direct materials = $10

Direct Labor = $7

Variable manufacturing overhead = $1

Fixed manufacturing overhead = $8

Unit production cost = $26

An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. the company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. assume that all other costs are avoidable costs in this decision. based on these data, the per-unit dollar advantage or disadvantage of purchasing from the outside supplier would be:

a. $1 disadvantage

b. $5 advantage

c. $3 advantage

d. $4 disadvantage

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