Han Products manufactures 16,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 16,000 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 $ 5.20 5.00 3.80 15.00 Total cost per part $ 29.00 An outside supplier has offered to sell 16,000 units of part S-6 each year to Han Products for $40.00 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 $331,000. 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) Calculate per unit and total cost of make and buy :

b) Calculate profit :

If outside supplier's office is accepted then profit will decrease by $5000

Per unit 16000 unit Make Buy Make Buy Direct material 5.20 83200 Direct labour 5.00 80000 Variable overhead 3.80 60800 Fixed overhead 5.00 80000 Purchase cost 40.00 Total 19.00 40.00 304000 640000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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