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:
|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.
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?