Han Products manufactures 23,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 23,000 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 overheac 5.00 7.00 2.40 9.00 Total cost per part $ 23.40 An outside supplier has offered to sell 23,000 units of part S-6 each year to Han Products for $38.00 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 $470,800. 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 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 23,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost

Explanation / Answer

Calculate per unit and total relevant cost ;

2) Total relevant cost of making = 400200+470800 = 871000

Relevant cost of buying = 874000

Profit would decrease by -$3000

Per unit differential costs 23000 Units Make Buy Make Buy Cost of purchasing 38 874000 Cost of making Direct material 5 115000 Direct labour 7 161000 variable overhead 2.40 55200 Fixed overhead 3 69000 Total cost 17.40 38.00 400200 874000

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