Han Products manufactures 40,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3. 30 12.00 2. 70 6.00 $ 24.00 An outside supplier has offered to sell 40,000 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 5-6 could be rented to another company at an annual rental of $90,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part 5-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Financial advantage Financial (disadvantage) Futura Company purchases the 64,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.80 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.50 as shown below: Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 5.00 3. 20 1.80 1.40 0.60 0.50 $ 115, 200 $ 89,600 $ 32,000 $ 12.50 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $115,200) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $83,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 64,000 starters instead of buying them from an outside supplier? Financial advantage Financial (disadvantage)