Han Products manufactures 33,000 units of part S-6 each year for use on its prod
ID: 2513989 • Letter: H
Question
Han Products manufactures 33,000 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:
An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $20 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 $83,000. 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.
Required:
What is the financial advantage (disadvantage) of accepting the outside supplier’s offer?
Direct materials $ 3.70 Direct labor 10.00 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 12.00 Total cost per part $ 28.00Explanation / Answer
financial advantage of accepting the outside supplier’s offer 83,000.00 Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Differential Direct Materials = 33000*3.70 122,100.00 122,100.00 Direct Labour = 33000*10 330,000.00 330,000.00 Variable manufacturing overhead =33000*2.30 75,900.00 75,900.00 Purchase cost= 33000*20 660,000.00 (660,000.00) Rental Income (83,000.00) 83,000.00 Relevant Fixed cost = 33000*12*1/3 132,000.00 132,000.00 Relevant Costs 660,000.00 577,000.00 83,000.00
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