Total relevant cost for buying and making the product

Reference no: EM131067331

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	$ 5.70
Direct labor	7.00
Variable manufacturing overhead	3.10
Fixed manufacturing overhead	18.00
Total cost per part	$ 33.80

An outside supplier has offered to sell 21.000 units of part S-6 each year to Han Products for 549 50 per part If Han Products accepts this offer the facilities now being used to manufacture pan S-6 could be rented to another company at an annual rental of 5570 700 However. Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to pan 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.)

Cost of purchasing Cost of making

Direct materials Direct labor

Variable overhead Fixed overhead Total cost

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

Reference no: EM131067331

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