Han Products makes 30,000 units of part S-6 each year for use on its production line....

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Han Products makes 30,000 units of part S-6 each year for use on its production line. At this level of production activity, the cost per unit of part S-6 is: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total cost per part An outside supplier has offered to sell 30,000 units of part 5-6 each year to Han Products for $21.00 per part. If Han accepts the offer, the facilities now being used to make part 5-6 could be rented to another company for $80,000 per year. However, Han has determined that two-thirds of the fixed factory overhead being applied to part S-6 would continue even if part S-6 were bought from the outside supplier. Required: Using quantitative analysis only, should Han accept the offer from the outside supplier? Show your calculations for your conclusions. Part 2. Dropping/Keeping a Segment: Bed & Bath, a consumer products retailer, operates 2 departments, Hardware and Linens. The company's most recent contribution format income statement shows the following: Sales $ 3.60 $10.00 $ 2.40 $9.00 $25.00 Variable expenses Contribution margin. Fixed expenses EBIT or NOI I T Total $4,000,000 1,300,000 2,700,000 2,200,000 500,000 Hardware Dept $3,000,000 900,000 2,100,000 1,400,000 700,000 Linens Dept $1,000,000 400,000 600,000 800,000 (200,000) An internal company study shows that $340,000 of the fixed expenses being charged to Linens, are sunk costs or allocated costs that will continue even if the Linens Dept is dropped. In addition, the elimination of Linens will result in a 10% decrease in the sales of the Hardware Dept. Required: What will be the effect on EBIT if the Linens Dept is dropped? Should the company keep operating the Linens Dept or not? D Han Products makes 30,000 units of part S-6 each year for use on its production line. At this level of production activity, the cost per unit of part S-6 is: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total cost per part An outside supplier has offered to sell 30,000 units of part 5-6 each year to Han Products for $21.00 per part. If Han accepts the offer, the facilities now being used to make part 5-6 could be rented to another company for $80,000 per year. However, Han has determined that two-thirds of the fixed factory overhead being applied to part S-6 would continue even if part S-6 were bought from the outside supplier. Required: Using quantitative analysis only, should Han accept the offer from the outside supplier? Show your calculations for your conclusions. Part 2. Dropping/Keeping a Segment: Bed & Bath, a consumer products retailer, operates 2 departments, Hardware and Linens. The company's most recent contribution format income statement shows the following: Sales $ 3.60 $10.00 $ 2.40 $9.00 $25.00 Variable expenses Contribution margin. Fixed expenses EBIT or NOI I T Total $4,000,000 1,300,000 2,700,000 2,200,000 500,000 Hardware Dept $3,000,000 900,000 2,100,000 1,400,000 700,000 Linens Dept $1,000,000 400,000 600,000 800,000 (200,000) An internal company study shows that $340,000 of the fixed expenses being charged to Linens, are sunk costs or allocated costs that will continue even if the Linens Dept is dropped. In addition, the elimination of Linens will result in a 10% decrease in the sales of the Hardware Dept. Required: What will be the effect on EBIT if the Linens Dept is dropped? Should the company keep operating the Linens Dept or not? D

Answer rating: 100% (QA)

Part 1 Decision to Buy Part S6 from the Outside Supplier Determine whether Han Products should accep... View the full answer