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An Products manufactures 25,000 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 $3.00
Direct labour 9.00
Variable overhead 2.00
Fixed overhead 8.70
Total cost per part $22.70
An outside supplier has offered to sell 25,000 units of part S-6 each year to Han Products for $20.50 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 $80,000. However, Han Products has determined that two-thirds of the fixed overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.
Required:
Question 1: What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round intermediate calculations)
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