Allzine Ltd

Multiple Choice

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