Question
Exercise 10-11 Make or Buy a Component [LO10-3] Han Products manufactures 27,000 units of part S-6 each year for use on its production line. At
Exercise 10-11 Make or Buy a Component [LO10-3]
Han Products manufactures 27,000 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 | $ | 5.60 |
Direct labor | 7.00 | |
Variable manufacturing overhead | 3.40 | |
Fixed manufacturing overhead | 9.00 | |
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Total cost per part | $ | 25.00 |
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An outside supplier has offered to sell 27,000 units of part S-6 each year to Han Products for $40.50 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 $569,500. 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. |
Required: |
a. | Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.) |
Per units differential costs | 27000 units | |||
make | buy | make | buy | |
Cost of purchasing | ||||
cost of making | ||||
Direct materials | ||||
direct labor | ||||
variable overhead | ||||
fixed overhead | ||||
total cost |
b. | How much will profits increase or decrease if the outside suppliers offer is accepted? |
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