How much will profits increase or decrease

Reference no: EM131978920

Question: Han Products manufactures 21,000 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 $ 5.40 Direct labor 7.00 Variable manufacturing overhead 3.90 Fixed manufacturing overhead 12.00 Total cost per part $ 28.30 An outside supplier has offered to sell 21,000 units of part S-6 each year to Han Products for $41.00 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 $435,700. 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.)

b. How much will profits increase or decrease if the outside supplier's offer is accepted?

Reference no: EM131978920

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