Han Products manufactures 29,000 units of part S-6 each year for use on its prod
ID: 2425433 • Letter: H
Question
Han Products manufactures 29,000 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 $ 4.00
Direct labor 7.00
Variable manufacturing overhead 2.30
Fixed manufacturing overhead 12.00
Total cost per part $ 25.30
An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $41.50 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 $712,800. 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 29,000 Units
Make Buy Make Buy
Cost of purchasing
Cost of making:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost
b.
How much will profits increase or decrease if the outside supplier’s offer is accepted?
Profit would _____________ by _____________
b.
How much will profits increase or decrease if the outside supplier’s offer is accepted?
Explanation / Answer
a.
b. Profit will increase by11000 .
Make Buy Purchase cost 41.50 Material cost 4 Labour cost 7 Variable manufacturing overhead 2.30 Avoidable fixed manufacturing overhead 4 Rental benefit (24.58) Relevant cost per unit 17.30 16.42 Total cost 501700 490700Related Questions
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