Han Products manufactures 17,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 17,000 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:

An outside supplier has offered to sell 17,000 units of part S-6 each year to Han Products for $42.50 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 $362,200. 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.

Calculate the per unit and total relevant cost for buying and making the product? (Round your "per unit" answers to 2 decimal places.)

Profit would? By ?.

Han Products manufactures 17,000 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:

Explanation / Answer

a Per unit 17000 Units Make Buy Make Buy Cost of purchasing 42.5 722500 Cost of making Direct materials 4.8 81600 Direct labor 8 136000 Variable manufacturing overhead 3.1 52700 Fixed manufacturing overhead 5 85000 Total cost 20.9 42.5 355300 722500 b Make Buy Total cost 355300 722500 Opportunity cost 362200 Total relevant cost 717500 722500 Profit would decrease by $5000(722500-717500) if the outside supplier’s offer is accepted

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