manufactures 26,000 units of part S-6 each year for use on its production line.

Question

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-8 is: Direct materials Direct labor $5.50 7.00 2.40 15.00 S 29.90 Flixed 7 overhead An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for S4 part S-6 could be rented to another part S-6 would continue even if part S-6 were purchased from the outside supplier company at an annual rental of $689,600. However, Han Products has determined that t 6.00 per part. If Han Required: Products accepts this offer, the facities now being used to manufacture two-thirds of the fixed 1. Calculate the per unit and total relevant cost for buying and making the product. (Round your "per unit" answers to 2 decimal places.) overhead being appled to Costs Cost of Cost of making Variable overhead

Explanation / Answer

1a) Compute total cost of making and buying :

1b)

so if outsider's offer accepted the profit will increase by $11000

per unit 26000 units Make Buy Make Buy Direct material 5.50 143000 Direct labour 7.00 182000 Variable overhead 2.40 62400 Fixed overhead 5.00 130000 Purchase cost 46 1196000 Total relevant cost 19.90 46.00 517400 1196000

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