Han Products manufactures 28,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 28,000 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 28,000 units of part S-6 each year to Han Products for $44.50 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 $747,000. 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.

    

Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.)

        

    

      

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Han Products manufactures 28,000 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

b.

if company accepted outside supplier offer, net profit will decrease by 9,000 ($779,000-$770,000)

Per unit Differential cost 28,000 Units Make Buy Make Buy Cost of purchasing $ 44.50 28,000*$44.50 = $1,246,000 Cost of making Direct Material $    4.10 28,000*$4.10 = $114,800 Direct Labour $    6.00 28,000*6 = $168,000 Variable overhead $    2.40 28,000*2.40 = $67,200 Fixed overhead $ 15.00 28,000*15 = $420,000 $420,000*2/3 = $280,000 Total Cost $ 27.50 $ 44.50 $                                 770,000 $                                    1,526,000

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