Han Products manufactures 34,000 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 $ 3.80 11.00 2.20 6.00 $23.00 An outside supplier has offered to sell 34,000 units of part S-6 each year to Han Products for $21 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 $84,000. 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?
Han Products manufactures 34,000 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 $ 3.80 11.00 2.20 6.00 $23.00 An outside supplier has offered to sell 34,000 units of part S-6 each year to Han Products for $21 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 $84,000. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Han Products manufactures 34,000 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
$
3.80
11.00
2.20
6.00
$ 23.00
An outside supplier has offered to sell 34,000 units of part S-6 each year to Han Products for $21 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 $84,000. 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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