EXERCISE 12-11 Make or Buy a Component (L012-3] Han Products manufactures 30,000 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 $ 3.60 10.00 2.40 9.00 $25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 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 $80,000. 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: Prepare computations showing how much profits will increase or decrease if the outside supplier's offer is accepted.
Related questions
| Han Products manufactures 17,000 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 | $ | 4.80 |
| Direct labor | 8.00 | |
| Variable manufacturing overhead | 3.10 | |
| Fixed manufacturing overhead | 15.00 | |
| Total cost per part | $ | 30.90 |
| An outside supplier has offered to sell 17,000 units of part S-6 each year to Han Products for $42.50 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 $362,200. 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.) | |||||||||||||||||||||||||||||||||||||||||||||
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| b. | How much will profits increase or decrease if the outside supplierâs offer is accepted? |
Profit would? By ?.
Han Products manufactures 34,000 units of part S-6 each year foruse on its production line. At this level of activity, the cost perunit for part S-6 is:
| Direct materials | $ | 3.80 |
| Direct labor | 11.00 | |
| Variable manufacturingoverhead | 2.20 | |
| Fixed manufacturingoverhead | 6.00 | |
| Total cost per part | $ | 23.00 |
An outside supplier has offered to sell 34,000 units of part S-6each year to Han Products for $21 per part. If Han Products acceptsthis offer, the facilities now being used to manufacture part S-6could be rented to another company at an annual rental of $84,000.However, Han Products has determined that two-thirds of the fixedmanufacturing overhead being applied to part S-6 would continueeven if part S-6 were purchased from the outside supplier.
Required:
What is the financial advantage (disadvantage) of accepting theoutside supplierâs offer?
Han Products manufactures 20,000 units of part S-6 each year foruse on its production line. At this level of activity, the cost perunit for part S-6 is as follows: |
| Direct materials | $5.10 |
| Direct labor | 6.00 |
| Variable manufacturing overhead | 2.50 |
| Fixed manufacturing overhead | 12.00 |
| Total cost per part | $25.60 |
An outside supplier has offered to sell 20,000 units of part S-6each year to Han Products for $48.00 per part. If Han Productsaccepts this offer, the facilities now being used to manufacturepart S-6 could be rented to another company at an annual rental of$613,000. However, Han Products has determined that two-thirds ofthe fixed manufacturing overhead being applied to part S-6 wouldcontinue even if part S-6 were purchased from the outsidesupplier. |
| Required: |
| (a) | What is the total amount of avoidable costs if Han buys the unitsfrom an outside supplier? (Omit the "$" sign in your response.) |
| Total cost | $ |
| (b) | How much will profits increase or decrease if the outsidesupplier's offer is accepted? (Input the amount as positive value. Omit the "$" sign in yourresponse.) |
| Profits would (Click to select)increasedecrease by | $ |
