Han Products manufactures 23,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 23,000 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 $ 4.20 8.00 3.00 12.00 27.20 An outside supplier has offered to sell 23,000 units of part S-6 each year to Han Products for $39.50 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 $455,900. 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 1. 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 Differentia Costs 23,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost 2. How much will profits increase or decrease if the outside supplier's offer is accepted? would

Explanation / Answer

1 per unit differential cost 23000 units Make Buy Make Buy Cost of purchasing 39.5 908500 (23000*39.50) cost of making Direct material 4.2 96600 (23000*4.2) Direct labor 8 184000 (23000*8) Variable overhead 3 69000 (23000*3) Fixed overhead 12 8 276000 184000 (12*2/3) (23000*12) (23000*8) Tota cost 27.2 47.5 625600 1092500 Less:Savings due to renting of facilities in buying alterntive 455900 Net cost 625600 636600 2 profit will decrease by   $11000 (636600-625600)

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