Han Products manufactures 27.000 units of part S-6 each year for use on its prod
ID: 2485536 • Letter: H
Question
Han Products manufactures 27.000 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 isAn outside supplier has offered to sel 27.000 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 $616,100. 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 Calculate the per unit and total relevant cost for buying and making the produc How much will profits increase or decrease if the outside supplier's offer is acceptedExplanation / Answer
a.
b.If the outside supplier's offer is accepted, profits will decrease by 27,000 x $ (19.20 - 42.50 ) + $ 616,100 =
$ 13,000
Make ( Per unit) Buy ( Per unit) Make ( 27,000 units ) Buy ( 27,000 units) Cost of purchasing $ 42.50 $ 1,147,500 Cost of making Direct materials $ 4.40 $ 118,800 Direct labor $ 7.00 $ 189,000 Variable overhead $ 3.80 $ 102,600 Fixed overhead $ 4.00 $ 108,000 (616,100) Total $ 19.20 $ 19.68 $ 518,400 531,400Related Questions
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