Han Products manufactures 17,000 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	$	4.90
Direct labor		6.00
Variable manufacturing overhead		2.80
Fixed manufacturing overhead		9.00
Total cost per part	$	22.70

An outside supplier has offered to sell 17,000 units of part S-6 each year to Han Products for $42.00 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 $381,300. 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 answer to 2 decimal places.)

Per Unit Differential Costs		17,000 Units
	Make	Buy	Make	Buy
Cost of purchasing
Cost of making:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost

b. How much profits will increase or decrease if the outside supplier.

Answer rating: 100% (QA)

The cost of making the product is calculated here below Particulars Per Unit Differential ... View the full answer