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	$	4.00
Direct labor		7.00
Variable manufacturing overhead		4.00
Fixed manufacturing overhead		15.00
Total cost per part	$	30.00

An outside supplier has offered to sell 27,000 units of part S-6 each year to Han Products for $47.00 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 $736,000. 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.

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 27,000 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?

Profit would be ______ by _______