carley company produces 2000 parts per year which are being used in the assembly of one of its products. The variable cost of manufacturing each part is $64 and the fixed manufacturing cost total $34 per unit for a total product cost of $100. The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier two-thirds of the fixed manufacturing costs can be eliminated. Which cost are relevant to this decision? Why? What would be the annual impact on the company’s net operating income to be a result of buying the part from the outside supplier?

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"carley company produces 2000 parts per year which are being used in the assembly of one of its products. The variable cost of manufacturing each part is $64 and the fixed manufacturing cost total $34 per unit for a total product cost of $100. The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier two-thirds of the fixed manufacturing costs can be eliminated. Which cost are relevant to this decision? Why? What would be the annual impact on the company’s net operating income to be a result of buying the part from the outside supplier?"

A reduction of 2/3 of the $34 fixed price comes to $11.33 plus $80 for parts from the outside supplier equals $91.33 per unit compared to $100. Using the outside supplier will save $8.67 per unit. Consideration needs to be given to whether the outside supplier can guarantee on-time delivery and the price otherwise your assembly line is sitting idle while orders pile up.