Differential Analysis

Han Products manufactures 36,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials $ 4.00 Direct labor 8.00 Variable manufacturing overhead 2.00 Fixed manufacturing overhead 9.60 Total cost per part $ 23.00 An outside supplier has offered to sell 36,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $86.000 However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier