Han Products manufactures 20,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 20,000 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 $ 4.80 5.00 2.30 12.00 Total cost per part $24.10 An outside supplier has offered to sell 20,000 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 $609,000. 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.

Explanation / Answer

a)

b)

if company accepted outside supplier offer, profit will increase by $11,000

Per unit Differential cost 20,000 Units Make Buy Make Buy Cost of purchasing $ 46.00 20,000 * $46 = $920,000 Cost of making Direct Material $    4.80 20,000 * $4.80 = $96,000 Direct Labour $    5.00 20,000 * $5 = $100,000 Variable overhead $    2.30 20,000 * $2.30 = $46,000 Fixed overhead $ 12.00 20,000 * $12 = $240,000 $240,000*2/3 = $160,000 Total Cost $ 24.10 $ 46.00 $                                 482,000 $                              1,080,000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.