Chapter 12 Hw 3 Han Products manufactures 34000 units of par

Chapter 12 Hw 3 Han Products manufactures 34,000 units of part $-6 each year for use on its production ine At this level of activity, the cost per unit for part S-6 is 0.83 peints 11.00 Variable aueturing overhead Pixed sutacturing overhead total eost per part An outside supplier has offered to sell 34,000 units of part $-6 each year to Han Products for $21 per part, if Han Products accepts ths wouid contnue eook offec, the facilities now being used to manufecture part S-6 could be rented to another company at an annual rental of $84,000. even if part S-6 were purchased from the outside supplier Required ctuing overtieed bein What is the tinancial advantage (disadvantage) of accepting the outside supplier\'s offer?

Solution

Differential analysis :

Financial advantage = 16000

	Make	Buy
Direct material	129200
Direct labour	374000
Variable manufacturing overhead	74800
Fixed manufacturing overhead	68000
Opportunity cost	84000
Purchase cost		714000
Total relevant cost	730000	714000