Han Products manufactures 47,500 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 as follows: Direct materials Direct labour Variable overhead Fixed overhead $5.25 11.25 4.25 10.05 Total cost per part $30.80 An outside supplier has offered to sell 41,500 units of part S-6 each year to Han Products for $27.25 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 $98.000. However, Han Products has determined that one-third(1/3) of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Requlred: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round the Intermedlate calculations. Round your Intermedlate calculetlons to two decimal places.) 2. What is the annual rental value at which the company will be indifferent between the two options? (Do not round the Intermedlate colculetions. Round your Intermedlete calculations to two declmal piaces.)

Han Products manufactures 47,500 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 as follows: Direct materials Direct labour Variable overhead Fixed overhead $5.25 11.25 4.25 10.05 Total cost per part $30.80 An outside supplier has offered to sell 41,500 units of part S-6 each year to Han Products for $27.25 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 $98.000. However, Han Products has determined that one-third(1/3) of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Requlred: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round the Intermedlate calculations. Round your Intermedlate calculetlons to two decimal places.) 2. What is the annual rental value at which the company will be indifferent between the two options? (Do not round the Intermedlate colculetions. Round your Intermedlete calculations to two declmal piaces.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

Han Products manufactures 47,500 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 as follows:
Direct materials
Direct labour
Variable overhead
Fixed overhead
$ 5.25
11.25
4.25
10.05
Total cost per part
$30.80
An outside supplier has offered to sell 41,500 units of part S-6 each year to Han Products for $27.25 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 $98,000.
However, Han Products has determined that one-third(1/3) of the fixed overhead being applied to part S-6 will be avoided if part S-6 is
purchased from the outside supplier.
Requlred:
1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round the Intermedlate
calculations. Round your Intermedlete calculetions to two decimal places.)
2. What is the annual rental value at which the company will be indifferent between the two options? (Do not round the Intermedlate
calculetions. Round your Intermedlate calculations to two decimal places.)
Annual rental value

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