Han Products manufactures 29,000 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 $ 3.70 Direct labor 12.00 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 9.00 Total cost per part $ 27.00 An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $23 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 $79,000. 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?
Calculation of financial advantage /disadvantage | |||||
Particulars | make | buy | |||
purchase cost | 667000 | 29000*23 | |||
cost of making | |||||
Direct material | 107300 | ||||
direct labor | 348000 | ||||
variable overhead | 66700 | ||||
fixed overhead | 87000 | ||||
annual rent | 79000 | ||||
Total cost | 688000 | 667000 | |||
Financial disadvantage/disadvange = 688000-667000 = 21000 | |||||
If company accept supplier offer there will be profit increase | |||||
by 21000 |
Han Products manufactures 29,000 units of part S-6 each year for use on its production line....
Han Products manufactures 29,000 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 $ 3.70 Direct labor 12.00 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 9.00 Total cost per part $ 27.00 An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $23 per part. If Han Products accepts this offer, the facilities now...
Han Products manufactures 23,000 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 $ 3.70 Direct labor 11.00 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 9.00 Total cost per part $ 26.00 An outside supplier has offered to sell 23,000 units of part S-6 each year to Han Products for $22 per part. If Han Products accepts this offer, the facilities now...
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: Direct Materials: $3.70 Direct Labor: $10.00 Variable manufacturing overhead: $2.30 Fixed manufacturing overhead: $12.00 Total cost per unit: $28.00 An outside supplier has offered to sell 33,000 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...
Han Products manufactures 35,000 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 $ 3.90 Direct labor 12.00 Variable manufacturing overhead 2.10 Fixed manufacturing overhead 9.00 Total cost per part $ 27.00 An outside supplier has offered to sell 35,000 units of part S-6 each year to Han Products for $23 per part. If Han Products accepts this offer, the facilities now...
Han Products manufactures 29,000 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 $ 5.70 Direct labor 5.00 Variable manufacturing overhead 3.70 Fixed manufacturing overhead 9.00 Total cost per part $ 23.40 An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $43.00 per part. If Han Products accepts this offer, the...
Han Products manufactures 24,000 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 $ 3.80 Direct labor 12.00 Variable manufacturing overhead 2.20 Fixed manufacturing overhead 12.00 Total cost per part $ 30.00 An outside supplier has offered to sell 24,000 units of part S-6 each year to Han Products for $24 per part. If Han Products accepts this offer, the facilities now...
Han Products manufactures 31,000 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 $ 3.50 Direct labor 8.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 6.00 Total cost per part $ 20.00 An outside supplier has offered to sell 31,000 units of part S-6 each year to Han Products for $18 per part. If Han Products accepts this offer, the facilities now...
Han Products manufactures 20,000 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$3.40 Direct labor 8.00 Variable manufacturing overhead 2.60 Fixed manufacturing overhead 9.00 Total cost per part $23.00 An outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts this offer, the facilities now being used to...
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Han Products manufactures 40,000 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 $3.30 Direct labor 12.00 Variable manufacturing overhead Fixed manufacturing overhead 2.70 6.00 Total cost per part 24.00 An outside supplier has offered to sell 40,000 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...