Han Products manufactures 20,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $3.40 8.00 2.60 9.00 $23.00 An outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts this offer, the facilities now being used to manufacture part 5-6 could be rented to another company for $70,000 per year. However, Han Products determined two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part 5-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
Han Products manufactures 20,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $3.40 8.00 2.60 9.00 $23.00 An outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts this offer, the facilities now being used to manufacture part 5-6 could be rented to another company for $70,000 per year. However, Han Products determined two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part 5-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Han Products manufactures 20,000 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
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per part
$ 3.40
8.00
2.60
9.00
$23.00
An outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts this
offer, the facilities now being used to manufacture part 5-6 could be rented to another company for $70,000 per year. However, Han
Products determined two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part 5-6 were
purchased from the outside supplier.
Required:
What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
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