Han Products manufactures 25,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 25,000 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: An outside supplier has offered to sell 25,000 units of part S-6 each year to Han Products for $46.00 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 $746,500. 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. Calculate the per unit and total relevant cost for buying and making the product?

Explanation / Answer

Ans-

Per unit                                 25,000 Detail Differential cost units Make Buy Make Buy Cost of purchasing         46.00 1,150,000 Cost of Making Direct materials     3.90     97,500.00 Direct labor     6.00 150,000.00 Manufacturing overhead Variable     3.20     80,000.00 Manufacturing overhead Fixed     9.00           6.00 225,000.00      150,000 Total Cost 22.10        552,500       (29.86)    (746,500)         22.14        552,500      553,500 Decreae in profit           (1,000)

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