Han Products manufactures 2B,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 2B,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 S 3.90 7.00 ariable manufacturing overhead 3.50 Fixed manufacturing overhead 15.00 $29.40 Total cost per part An outside supplier has offered to sell 28,000 units of part S- each year to Han Products for $44.00 per part. If Han Products accapts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $685,800. 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: 1. Calculate the per unit and total relevant cost for buying and making the product. (Round your "per unit" answers to 2 decimal places) 28,DD0 Units Differential Costs Make Bu Make Bu Cost of purchasin Cost of maki Direct materials Direct labor Variable avernead Fixed overhead Total cost 2. How much will profits increase or decrease if the outside supplier's offer is accepted?

Explanation / Answer

1) Calculate the per unit and total relevant cost :

Net benefit = 543200+685800-1232000 = -3000

Profit would decrease by $3000

Per unit differential cost 28000 Units Make Buy Make Buy Cost of purchasing 44 1232000 Cost of making Direct material 3.90 109200 Direct labour 7.00 196000 Variable overhead 3.50 98000 Fixed overhead 5.00 140000 Total cost 19.40 44.00 543200 1232000

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