Exercise 12-11 Make or Buy a Component [LO12-3] Han Products manufactures 30,000

Question

Exercise 12-11 Make or Buy a Component [LO12-3] Han Products manufactures 30,000 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 $ 3.60 10.00 2.40 9.00 Total cost per part $ 25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 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 $80,000. 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" answer to 2 decimal places.) Per Unit 30,000 Units Differential Costs Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost

Explanation / Answer

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Working:

Per Unit Differential cost 30000 Units Make Buy Differential cost Make Buy Differential cost Cost of purchasing 21.00 (21.00) 630,000.00 (630,000.00) Cost of making: Direct Material 3.60 3.60 108,000.00 108,000.00 Direct Labour 10.00 10.00 300,000.00 300,000.00 Variable overhead 2.40 2.40 72,000.00 72,000.00 Fixed overhead 3.00 3.00 90,000.00 90,000.00 Total cost 19.00 21.00 (2.00) 570,000.00 630,000.00 (60,000.00)

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