Chapter 12 Hw 3 Han Products manufactures 34,000 units of part $-6 each year for

Question

Chapter 12 Hw 3 Han Products manufactures 34,000 units of part $-6 each year for use on its production ine At this level of activity, the cost per unit for part S-6 is 0.83 peints 11.00 Variable aueturing overhead Pixed sutacturing overhead total eost per part An outside supplier has offered to sell 34,000 units of part $-6 each year to Han Products for $21 per part, if Han Products accepts ths wouid contnue eook offec, the facilities now being used to manufecture part S-6 could be rented to another company at an annual rental of $84,000. even if part S-6 were purchased from the outside supplier Required ctuing overtieed bein What is the tinancial advantage (disadvantage) of accepting the outside supplier's offer?

Explanation / Answer

Differential analysis :

Financial advantage = 16000

Make Buy Direct material 129200 Direct labour 374000 Variable manufacturing overhead 74800 Fixed manufacturing overhead 68000 Opportunity cost 84000 Purchase cost 714000 Total relevant cost 730000 714000

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