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

This entry was posted in Homework Help. Bookmark the permalink.

Comments are closed.