Han Products manufactures 27,000 units of part S-6 each year for use on its prod
ID: 2589928 • Letter: H
Question
Han Products manufactures 27,000 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 27,000 units of part S-6 each year to Han Products for $22 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 $77,000. 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 $ 3.50 Direct labor 10.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 12.00 Total cost per part $ 28.00Explanation / Answer
Per unit 27000 units Make Buy Make Buy Direct materials 3.5 94500 Direct labor 10 270000 Variable manufacturing overhead 2.5 67500 Fixed manufacturing overhead 4 108000 Opportunity cost 77000 Purchase cost 22 594000 Total cost 617000 594000 Ffinancial advantage = $23000 (617000-594000)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.