Han Products manufactures 30,000 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 . . . . . . . . . . . . . . . . . . . . . $ 3.60

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . 10.00

Variable manufacturing overhead . . . . . . . 2.40

Fixed manufacturing overhead . . . . . . . . . 9.00

Total cost per part . . . . . . . . . . . . . . . . . $ 25.00

An outside supplier has offered to sell 30,000 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 $ 80,000. 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:

Prepare computations showing how much profits will increase or decrease if the outside suppliers offer is accepted.