Han Products manufactures 17,000 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 $ 4.80 Direct labor 8.00 Variable manufacturing overhead 3.10 Fixed manufacturing overhead 15.00 Total cost per part $ 30.90
An outside supplier has offered to sell 17,000 units of part S-6 each year to Han Products for $42.50 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 $362,200. 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:
a. Calculate the per unit and total relevant cost for buying and making the product? (Round your "per unit" answers to 2 decimal places.)
Per unit Dif Cost Per Unit Dif Cost 17000 Units 17000 Make Buy Make Buy Cost of Purch COst of making ---------------- ---------------- ---------------- ---------------- DM DL VOH FOH TC
b. How much will profits increase or decrease if the outside supplierâs offer is accepted?
Profit would? By ?.
Han Products manufactures 17,000 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 | $ | 4.80 |
Direct labor | 8.00 | |
Variable manufacturing overhead | 3.10 | |
Fixed manufacturing overhead | 15.00 | |
Total cost per part | $ | 30.90 |
An outside supplier has offered to sell 17,000 units of part S-6 each year to Han Products for $42.50 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 $362,200. 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: |
a. | Calculate the per unit and total relevant cost for buying and making the product? (Round your "per unit" answers to 2 decimal places.) | |||||||||||||||||||||||||||||||||||||||||||||
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b. | How much will profits increase or decrease if the outside supplierâs offer is accepted? |
Profit would? By ?.