Direct materials $3.50
Direct labor $8.10
Variable manufacturing overhead $8.60
Supervisor's salary $4.00
Depreciation of special equipment $2.40
Allocated general overhead $7.60
An outside supplier has offered to make the extra large part and sell it to Sewtfi861 for $32.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the extra large part has no salvage value or other use. The allocated general overhead represents fixed costs of the entire Sewtfi861 company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make the extra large part could be used to make more of one of the company's other fabulous products, generating an additional segment margin of $35,000 per year for that product.
What would be the annual financial advantage (disadvantage) for Sewtfi861 Corp. as a result of buying the extra large part from the outside supplier?