Han Products manufactures 27000 units of part S6 each year f

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 Direct materials Direct labor Variable manufacturing overhead 4.10 Fixed manufacturing overhead S 5.30 7.00 15.00 Total cost per part $ 31.40 An outside supplier has offered to sell 27,000 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 $580,700. 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.) Per Unit Differential Costs Make 27,000 Units Buy Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead Total cost $ 0.00 $ 000 $ 0 S b. How much will profits increase or decrease if the outside supplier\'s offer is accepted?

Solution

Solution a:

Solution b:

If outside supplier\'s offer is accepted, Increase in profit would be = Annual rent from released capacity - (cost of buying - cost of making)

= $580,700 - ($1,147,500 - $577,800) = $580,700 - $569,700 = $11,000 increase

	Per unit Differencial costs	27000 units
	Make	Buy	Make	Buy
Cost of Purchasing	$0.00	$42.50	$0.00	$1,147,500.00
Cost of Making:
Direct Materials	$5.30	$0.00	$143,100.00	$0.00
Direct Labor	$7.00	$0.00	$189,000.00	$0.00
Variable Overhead	$4.10	$0.00	$110,700.00	$0.00
Fixed Overhead ($15*1/3)	$5.00	$0.00	$135,000.00	$0.00
Total Cost	$21.40	$42.50	$577,800.00	$1,147,500.00