Han Products manufactures 15,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 15,000 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead S 4.50 6.00 2.80 15.00 Total cost per part $28.30 An outside supplier has offered to sell 15,000 units of part S-6 each year to Han Products for $40.00 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 $318,500. 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 Differential Costs 15,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost $ 0.000.00$

Explanation / Answer

a) Differential analysis :

b) Profit would Decrease by 70000

Note : Making cost 274500+318500 = 593000; purchase cost = 600000 decrease by 593000-600000 = 7000

Per unit differential cost 15000 units Make Buy Make Buy Cost of purchasing 40 600000 Cost of making Direct materials 4.5 67500 Direct labour 6.0 90000 Variable overhead 2.8 42000 Fixed overhead 5.0 75000 Total cost 18.3 40 274500 600000

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