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 manufacture part S-6 could be rented to another company at an annual rental of $70,000. 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?
Financial advantage of accepting outside supplier's offer= $30,000
Working
Diffrencial Analysis | ||
Make | Buy | |
Direct material | $ 68,000 | |
Direct labor | $ 160,000 | |
Variable Overheads | $ 52,000 | |
Avoidable fixed overhead | $ 60,000 | |
Outside purchase price | $ 380,000 | |
Additional benefit from Buying from outside | -$ 70,000 | |
Total relevant Cost | $ 340,000 | $ 310,000 |
Total Cost of Buying | $ 310,000 |
Total Cost of manufacturing | $ 340,000 |
Cost saving if Outside offer is accepted | $ 30,000 |
Han Products manufactures 20,000 units of part S-6 each year for use on its production line....
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 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 $ 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 36,000 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 Total cost per part $ 4.00 8.00 2.00 9.00 $ 23.00 An outside supplier has offered to sell 36,000 units of part 5-6 each year to Han Products for $19 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 $ 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 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 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 26,000 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 Total cost per part $ 4.00 9.00 2.00 9.00 $ 24.00 An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for $20 per part. If Han Products accepts this offer, the facilities now...
Han Products manufactures 34,000 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: Han Products manufactures 34,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part 5-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.80 11.00 2.20 6.00 $23.00 An outside...