Han Products manufactures 20,000 units of part S-6 each year for use on its prod
ID: 2375846 • Letter: H
Question
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 as follows:
$25.60
An outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $48.00 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 $613,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.
What is the total amount of avoidable costs if Han buys the units from an outside supplier? (Omit the "$" sign in your response.)
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 as follows:
Explanation / Answer
Required:
(a)
What is the total amount of avoidable costs if Han buys the units from an outside supplier? (Omit the "$" sign in your response.)
Total cost
$
(b)
How much will profits increase or decrease if the outside supplier's offer is accepted? (Input the amount as positive value. Omit the "$" sign in your response.)
Profits would (Click to select) increase decrease by
$
Required:
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