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 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $5.00 6.00 2.90 12.00 Total cost per part $25.90 An outside supplier has offered to sell 25,000 units of part S-6 each year to Han Products for $45.00 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 $672,500. 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 Required a. Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.) Per Unit Differential Costs 25,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost $ 0.00$ 0.00$ b. How much will profits increase or decrease if the outside supplier's offer is accepted? Profit would

Explanation / Answer

Per unit 25000 units Make Buy Make Buy Cost of purchasing 45 1125000 Cost of making: Direct materials 5 125000 Direct labor 6 150000 Variable overhead 2.9 72500 Fixed overhead 4 100000 Total cost 17.9 45 447500 1125000 b Make Buy Total cost 447500 1125000 Opportunity cost 672500 Total relevant cost 1120000 1125000 Profit would decrease by $5000(1125000-1120000)

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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