Han Products manufactures 33,000 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 $ 3.70 Direct labor Variable manufacturing overhead Fixed manufacturing overhead 10.00 2.30 12.00 Total cost per part $ 28.00 An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $22 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 $83,000. 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.
Han Products manufactures 33,000 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 $ 3.70 Direct labor Variable manufacturing overhead Fixed manufacturing overhead 10.00 2.30 12.00 Total cost per part $ 28.00 An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $22 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 $83,000. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
11hw1
Transcribed Image Text:Han Products manufactures 33,000 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
$ 3.70
Direct labor
10.00
Variable manufacturing overhead
Fixed manufacturing overhead
2.30
12.00
Total cost per part
$ 28.00
An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $22 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 $83,000.
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:
What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
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