Han Products manufactures 31,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 31,000 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 Total cost per part $ 3.50 8.00 2.50 6.00 $ 20.00 ces An outside supplier has offered to sell 31,000 units of part S-6 each year to Han Products for $18 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 $81,000. 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: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

Explanation / Answer

INCREMENTAL ANALYSIS: MANUFACTURE OUTSOURCE NET INCOME INCREASE/(DECREASE) COST: Material cost(31000 units @ 3.50) 108500 0 108500 Labour cost (31000 units @ 8.00) 248000 0 248000 variable OH (31000 units @2.50) 77500 0 77500 Fixed manufacturing OH 186000 124000 62000 Supplier cost (31000 units @18) 558000 -558000 Rental Income -81000 81000 Net Increase in Income 19000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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