What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
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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Question
![Exercise 11-11 Make or Buy Decision [LO11-3]
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
$ 3.40
8.00
2.60
Variable manufacturing overhead
Fixed manufacturing overhead
9.00
$23.00
Total cost per part
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 S-6 could be rented to another company at an annual rental of $70,000.
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd28a980f-17d2-459f-a993-85c19589cc00%2F9cefc5ab-6eb3-410f-ac87-20c73767cc5a%2Fjixrv8g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 11-11 Make or Buy Decision [LO11-3]
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
$ 3.40
8.00
2.60
Variable manufacturing overhead
Fixed manufacturing overhead
9.00
$23.00
Total cost per part
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 S-6 could be rented to another company at an annual rental of $70,000.
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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