Han Products manufactures 19,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 19,000 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 $ 4.70 5.00 2.60 15.00 Total cost per part $ 27.30 An outside supplier has offered to sell 19,000 units of part S-6 each year to Han Products for $38.50 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 $403,800. 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 19,000 Units Make Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost $ 0.00 0.00$

Explanation / Answer

a) Differential analysis :

Profit will increase by (328700+403800-731500) = 1000

Profit would increase by 1000

Per unit 19000 unit Make Buy Make Buy Cost of purchasing 38.50 731500 Cost of making Direct material 4.70 89300 Direct labour 5.00 95000 Variable manufacturing overhead 2.60 49400 Fixed overhead 5.00 95000 Total relevant cost 17.30 38.50 328700 731500

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