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

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 \$ 4.90 Direct labor 5.00 Variable manufacturing overhead 2.90 Fixed manufacturing overhead 15.00 Total cost per part \$ 27.80

An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for \$44.00 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 \$682,200. 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.

Required:

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

b. How much profits will increase or decrease if the outside supplier’s offer is accepted?

Here’s the SOLUTION

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