What is net dollar advantage or disadvantage of offer

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Problem - Han Products manufactures 52,500 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

$5.75

Direct labour

11.75

Variable overhead

4.75

Fixed overhead

10.35

Total cost per part

$32.60

An outside supplier has offered to sell 46,000 units of part S-6 each year to Han Products for $28.75 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 $102,000. However, Han Products has determined that one-third(1/3) of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier.

Required - What is the net dollar advantage or disadvantage of accepting the outside supplier's offer?

Reference no: EM133041598

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