What is financial impact of accepting outside supplier offer

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Question - Han Products manufactures 22,000 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 $3.60

Direct labor 10.00

Variable manufacturing overhead 2.40

Fixed manufacturing overhead 6.00

Total cost per part $22.00

An outside supplier has offered to sell 22,000 units of part S-6 each year to Han Products for $20 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 $72,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part S-6 were purchased from the outside supplier. What is the financial impact of accepting the outside supplier's offer?

Reference no: EM133070294

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