Exercise 11-11 Make or Buy Decision [LO11-3]

Han Products manufactures 34,000 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	$	3.80
Direct labor		11.00
Variable manufacturing overhead		2.20
Fixed manufacturing overhead		6.00
Total cost per part	$	23.00

An outside supplier has offered to sell 34,000 units of part S-6 each year to Han Products for $21 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 $84,000. 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.

Required:

What is the financial advantage (disadvantage) of accepting the outside suppliers offer?

Exercise 11-11 Make or Buy Decision [LO11-3] Han Products manufactures 34,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: points Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.80 11.00 2.20 6.00 $23.00 An outside supplier has offered to sell 34,000 units of part S-6 each year to Han Products for $21 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 $84,000. 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. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Answer is not complete. Financial advantage