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Han Products manufactures 70,000 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 70,000 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 as follows: -7 Direct materials Direct labour Variable overhead Fixed overhead $ 7.50 13.50 6.50 11.40 $38.90 Total cost per part An outside supplier has offered to sell 62,500 units of part S-6 each year to Han Products for $34.00 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 $116,000. However, Han Products has determined that 30% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Required: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Round "Total costs" and final answer to the nearest whole dollar amount.) Net dollar disadvantage $ 2,693 400
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