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Xian Products manufactures 32,500 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 $ 3.75 9.75 Variable overhead Fixed overhead Total cost per part $ 25.40 2.75 9.15 An outside supplier has offered to sell 28,500 units of part S-6 each year to Han Products for $22.75 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 $86,000. 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.

Xian Products manufactures 32,500 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 $ 3.75 9.75 Variable overhead Fixed overhead Total cost per part $ 25.40 2.75 9.15 An outside supplier has offered to sell 28,500 units of part S-6 each year to Han Products for $22.75 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 $86,000. 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.

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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Xian Products manufactures 32,500 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 Total cost per part $ 25.40 $ 3.75 9.75 2.75 9.15 An outside supplier has offered to sell 28,500 units of part S-6 each year to Han Products for $22.75 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 $86,000. 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.)
Transcribed Image Text:Xian Products manufactures 32,500 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 Total cost per part $ 25.40 $ 3.75 9.75 2.75 9.15 An outside supplier has offered to sell 28,500 units of part S-6 each year to Han Products for $22.75 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 $86,000. 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.)
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