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Xian Products manufactures 30,000 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 as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost per part $3.50 9.50 2.50 9.00 $24.50 An outside supplier has offered to sell 26,500 units of part S-6 each year to Han Products for $22.00 per part. If Xian 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, Xian Products has determined that 30% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Required: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Round "Total costs" and final answer to the nearest whole dollar amount.) 2. What is the annual rental value at which the company will be indifferent between the two options? (Round "Total costs" and final answer to the nearest whole dollar amount.) Annual rental value

Xian Products manufactures 30,000 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 as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost per part $3.50 9.50 2.50 9.00 $24.50 An outside supplier has offered to sell 26,500 units of part S-6 each year to Han Products for $22.00 per part. If Xian 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, Xian Products has determined that 30% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Required: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Round "Total costs" and final answer to the nearest whole dollar amount.) 2. What is the annual rental value at which the company will be indifferent between the two options? (Round "Total costs" and final answer to the nearest whole dollar amount.) Annual rental value

FINANCIAL ACCOUNTING
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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am. 288.

**Cost Analysis for Part S-6:** **Situation Overview:** Xian Products manufactures 30,000 units of part S-6 annually for its production line. The cost per unit for part S-6 is detailed below: - **Direct materials:** $3.50 - **Direct labour:** $9.50 - **Variable overhead:** $2.50 - **Fixed overhead:** $9.00 **Total cost per part:** $24.50 **Offer from Outside Supplier:** - A supplier proposes to sell 26,500 units of part S-6 to Xian Products at $22.00 per part. - An alternative use for the production facilities is renting them out at an annual rate of $84,000. - It is estimated that 30% of the fixed overhead will be eliminated if part S-6 is sourced externally. **Requirements:** 1. **Net Dollar Advantage/Disadvantage:** - Calculate the financial implications of accepting the supplier's offer. - Consider cost savings in fixed overhead and potential rental income. - Provide the result rounded to the nearest whole dollar. 2. **Indifference Point - Annual Rental Value:** - Determine the rental value at which the costs of manufacturing internally versus purchasing externally are equal. - Provide the result rounded to the nearest whole dollar.
Transcribed Image Text:**Cost Analysis for Part S-6:** **Situation Overview:** Xian Products manufactures 30,000 units of part S-6 annually for its production line. The cost per unit for part S-6 is detailed below: - **Direct materials:** $3.50 - **Direct labour:** $9.50 - **Variable overhead:** $2.50 - **Fixed overhead:** $9.00 **Total cost per part:** $24.50 **Offer from Outside Supplier:** - A supplier proposes to sell 26,500 units of part S-6 to Xian Products at $22.00 per part. - An alternative use for the production facilities is renting them out at an annual rate of $84,000. - It is estimated that 30% of the fixed overhead will be eliminated if part S-6 is sourced externally. **Requirements:** 1. **Net Dollar Advantage/Disadvantage:** - Calculate the financial implications of accepting the supplier's offer. - Consider cost savings in fixed overhead and potential rental income. - Provide the result rounded to the nearest whole dollar. 2. **Indifference Point - Annual Rental Value:** - Determine the rental value at which the costs of manufacturing internally versus purchasing externally are equal. - Provide the result rounded to the nearest whole dollar.
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