Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Han Products manufactures 33,000 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 33,000 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 $ 3.70
Direct labor 10.00
Variable manufacturing overhead 2.30
Fixed manufacturing overhead 12.00
Total cost per part $ 28.00

An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $22 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 $83,000. 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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting In Health Care Organizations

Authors: David W. Young

3rd Edition

1118653629, 978-1118653623

More Books

Students also viewed these Accounting questions