Exercise 10-11 Make or Buy a Component [LO10-3] Han Products manufactures 16,000
ID: 2521884 • Letter: E
Question
Exercise 10-11 Make or Buy a Component [LO10-3]
Han Products manufactures 16,000 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 16,000 units of part S-6 each year to Han Products for $48.50 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 $497,400. 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 product? (Round your Per Unit answers to 2 decimal places.)
Han Products manufactures 16,000 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:
Explanation / Answer
a) Calculate the per unit and total relevant cost for buying and making the product?
b) Profit will increase by (281600+497400-776000) = 3000
Per unit Total Make Buy Make Buy Direct material 5.50 88000 Direct labour 5.00 80000 Variable manufacturing overhead 3.10 49600 Fixed manufacturing overhead 4.00 64000 Purchase cost 48.50 776000 Total 17.60 48.50 281600 776000Related Questions
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