Han Products manufactures 26,000 units of part S-6 each year for use on its prod
ID: 2493772 • Letter: H
Question
Han Products manufactures 26,000 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 26,000 units of part S-6 each year to Han Products for $48.00 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 $683,800. 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.
Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.)
Han Products manufactures 26,000 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:
Explanation / Answer
Han Products A relevant cost for buying and making the product a Relevant cost for making the product per unit Dircect Material $ 4.30 Direct labor $ 7.00 Variable manufacturing overhead $ 3.90 Fixed Manufacturing overhead $ 18- (2/3 of $ 18) $ 6.00 Total per unit cost of making the product $ 21.20 Total cost for 26000 units $ 5,51,200 Opportunit cost $ 6,83,800 Total relevant cost for making the product $ 12,35,000 a Relevant cost for buying the product Per unit offer from outside supplier $ 48.00 Number of units 26,000 Total Relevant cost of buying the product 26,000 x $ 48 $ 12,48,000 B How much will profits increase or decrease if the outside supplier’s offer is accepted? Per unit Total Make Buy Make Buy Purchase price $ 48.00 $ 12,48,000 Dircect Material $ 4.30 $ 1,11,800 Direct labor $ 7.00 $ 1,82,000 Variable manufacturing overhead $ 3.90 $ 1,01,400 Relevant fixed Manufacturing overhead $ 6.00 $ 1,56,000 Opportunity cost (rental income) $ 26.30 $ 6,83,800 Total Relevant costs $ 47.50 $ 48.00 $ 12,35,000 $ 12,48,000 Difference in favor of making $ 0.50 $ 13,000 Profit will be decreased if outside supllier's offer is accepted
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