Han Products manufactures 21,000 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 $5.40 7.00 Variable manufacturing overhead 3.90 Fixed manufacturing overhead Total cost per part 12.00 $28.30 An outside supplier has offered to sell 21,000 units of part S-6 each year to Han Products for $41.00 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 $435,700. 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? b. How much will profits increase or decrease if the outside supplier's offer is accepted?
Han Products manufactures 21,000 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 $5.40 7.00 Variable manufacturing overhead 3.90 Fixed manufacturing overhead Total cost per part 12.00 $28.30 An outside supplier has offered to sell 21,000 units of part S-6 each year to Han Products for $41.00 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 $435,700. 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? b. How much will profits increase or decrease if the outside supplier's offer is accepted?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Han Products manufactures 21,000 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
$5.40
7.00
Variable manufacturing overhead 3.90
Fixed manufacturing overhead
Total cost per part
12.00
$28.30
An outside supplier has offered to sell 21,000 units of part S-6
each year to Han Products for $41.00 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 $435,700. 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?
b. How much will profits increase or decrease if the outside
supplier's offer is accepted?
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