Question
Han Products manufactures 26,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit
Han Products manufactures 26,000 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 6.00 Variable manufacturing overhead 3.60 Fixed manufacturing overhead 15.00 Total cost per part $ 30.20 An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for $44.50 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 $638,800. 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 Unit Differential Costs 26,000 Units Make Buy Make Buy $ 44.50 Cost of purchasing 1157,000 Cost of making Direct materials Direct labor Variable overhead Fixed overhead 5.60 6.00 3.60 5.00 Total cost 20.20 44.50$ 1,157,000 b. How much will profits increase or decrease if the outside supplier's offer is accepted? Profit would byStep by Step Solution
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