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Make or Buy. Han Products manufactures 30,000 uni...

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Make or Buy. 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 as follows: Direct materials $ 3.60 Direct labor 10.00 Variable manufacturing Critiquing a Variance Report 2.40 Fixed manufacturing Critiquing a Variance Report 9.00 Total cost per part $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. Prepare computations showing how much profits will increase or decrease if the outside supplier?s offer is accepted.

 

Paper#9968 | Written in 18-Jul-2015

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