han products manufactures 22,000 units of part s-6 each year for use on its prod
ID: 2389133 • Letter: H
Question
han products manufactures 22,000 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 4.50 direct labor 5.00 variable manufacturing overhead 2.90
fixed manufacturing overhead 12.00
total cost of part $24.40
An outside supplier has offered to sell 22,000 units of part S-6 each year to Han Products for $44.00 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 $594,200. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.
How much will profits increase or decrease if the outside supplier's offer is accepted? (Input the amount as positive value. Omit the "$" sign in your response.)_________________
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_________________
Explanation / Answer
cost if we buy from outside supplier=22000*44=968000 two third of fixed cost=(12*2/3)*22000=176000 total cost=1144000 annual rent=594200 so net cost if purchase from outside supplier=1144000-594200=549800 if it manufactures then cost is=22000*24.40=536800 A)if outside supplier's offer is accepted then profit will decrease by (549800-536800)=13000 B)total amount of avoidable costs=4.50+5+2.90+(12*1/3)=16.4 per unit 22000*16.4=360800
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