Han Products manufactures 26,000 units of part S-6 each year for use on its prod
ID: 2396315 • Letter: H
Question
Han Products manufactures 26,000 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead $5.10 6.00 4.00 12.00 Total cost per part 27.10 An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for $49.50 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 $805,400. 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 26,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total costExplanation / Answer
Per unit 26,000 unit a Differential cost Make Buy Make Buy Cost of purchasing 49.50 1,287,000.00 Cost of Making; Direct Materials 5.10 132,600.00 Direct Labor 6.00 156,000.00 Variable manufacturing overhead 4.00 104,000.00 Fixed Manufacturing overhead ( 2/3rd of $ 12 for buy) 12.00 8.00 312,000.00 208,000.00 Total cost 27.10 57.50 704,600.00 1,495,000.00 Rental income if product is purchased from outside 805,400.00 Effective buying cost for 26,000 units ( $ 1,495,000 - $ 805,400) 689,600.00 b 26,000 units ($) Cost of make 704,600.00 Less: Cost of Buy (689,600.00) increase in profit if supplier's offer is accepted 15,000.00
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