Han Products manufactures 26,000 units of part S-6 each year for use on its prod
ID: 2572586 • 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: Direct materials $ 5.60 Direct labor 6.00 Variable manufacturing overhead 3.60 Fixed manufacturing overhead 15.00 Total cost per part $ 30.20 An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for $44.50 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 $638,800. 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.
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 26,000 Units Make Buy Make Buy $ 44.50 Cost of purchasing 1157,000 Cost of making Direct materials Direct labor Variable overhead Fixed overhead 5.60 6.00 3.60 5.00 Total cost 20.20 44.50$ 1,157,000 b. How much will profits increase or decrease if the outside supplier's offer is accepted? Profit would byExplanation / Answer
a. Calculate the per unit and total relevant cost for buying and making the product.
b. How much will profits increase or decrease if the outside supplier's offer is accepted?
Total relevant Cost of Manufacturing = $525,000 + $638,800
...........................................................= $1,163,800
Total relevant cost of Buying = $1,157,000
Profit would increase buy $6,800 i.e. ( $1,163,800 - $1,157,000)
Particulars Per Unit Differential Costs 26,000 units Make Buy Make Buy Cost of purchasing $44.50 $1,157,000.00 Cost of making: Direct materials $5.60 $145,600.00 Direct Labor $6 $156,000.00 Variable Overhead $3.60 $93,600.00 Fixed Overhead $5 $130,000.00 Total Cost $20.20 $44.50 $525,200.00 $1,157,000.00Related Questions
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