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Exercise 12-7 Make or Buy a Component [LO3] Han Products manufactures 24,000 units of part S-6 each year for use on its production line. At
Exercise 12-7 Make or Buy a Component [LO3] Han Products manufactures 24,000 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 as follows: Direct materials ...$4.50 Direct labor...........$8.00 Variable manufacturing overhead...$4.00 Fixed manufacturing overhead.......$15.00 Total cost per part...$31.50 An outside supplier has offered to sell 24,000 units of part S-6 each year to Han Products for $51.00 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 $711,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required:(a) What is the total amount of avoidable costs if Han buys the units from an outside supplier? (Omit the "$" sign in your response.) Total cost....$ (b) How much will profits increase or decrease if the outside supplier's offer is accepted? (Input the amount as positive value. Omit the "$" sign in your response.) Profits would increase by ....$
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