Hanson, Inc makes 1,000 units per year of a part called a \"prositron\" for use
ID: 2361660 • Letter: H
Question
Hanson, Inc makes 1,000 units per year of a part called a "prositron" for use in one of its products. Data concerning the unit production costs of the prositron follow: Direct materials $342 Direct labor 80 Varible manufacturing OH 48 Fixed manufacturing OH 520 Total $990 An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 10% of the above fixed manufacturing overhead costs could be avoided. required: Assume Hanson, Inc. has no alternative use for the facillities presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $850 each, should Hanson,Inc accept the offer? Fully support your answer with appropriate calculation.Explanation / Answer
Make
Buy
Purchase cost................................................
$850
Direct materials............................................
$342
Direct labor...................................................
80
Variable manufacturing overhead................
48
Fixed manufacturing overhead*..................
52
Total cost......................................................
$522
$850
* 10% × $520
The company should make the part rather than buy it from the outside supplier since it costs $328 less under that alternative.
Total cost of making the part internally.............
$522
Opportunity cost per unit ($50,000 ÷ 1,000).....
50
Total...................................................................
$572
Make
Buy
Purchase cost................................................
$850
Direct materials............................................
$342
Direct labor...................................................
80
Variable manufacturing overhead................
48
Fixed manufacturing overhead*..................
52
Total cost......................................................
$522
$850
* 10% × $520
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