an Products manufactures 32,000 units of part S-6 each year for use on its production e. At this level of activity, the cost per unit for part S-6 is as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost per part £ 3.40 11.00 2.60 9.00 £26.00 n outside supplier has offered to sell 32,000 units of part S-6 each year to Han roducts for £22 per part. If Han Products accepts this offer, the facilities now being sed to manufacture part S-6 could be rented to another company at an annual rental of 33,000. However, Han Products has determined that two-thirds of the fixed overhead eing applied to part S-6 would continue even if part S-6 were purchased from the utside supplier. equired: repare computations to show the net advantage or disadvantage of accepting the utside supplier's offer. (Enter all the answers as positive values. Round your per unit nswers to 2 decimal place.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Han Products manufactures 32,000 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
Direct labour
Variable overhead
Fixed overhead
Total cost per part
An outside supplier has offered to sell 32,000 units of part S-6 each year to Han
Products for £22 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
£83,000. 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:
Prepare computations to show the net advantage or disadvantage of accepting the
outside supplier's offer. (Enter all the answers as positive values. Round your per unit
answers to 2 decimal place.)
Cost of purchasing
Cost of making:
Direct materials
Direct labour
Variable overhead
Fixed overhead
Total cost
Rental value of the space (opportunity cost)
Total cost, including opportunity cost
Net
£ 3.40
11.00
2.60
9.00
£26.00
in favour of buying
Per Unit Differential Costs
Make
Buy
32,000 Units
Make
Buy
Transcribed Image Text:Han Products manufactures 32,000 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 Direct labour Variable overhead Fixed overhead Total cost per part An outside supplier has offered to sell 32,000 units of part S-6 each year to Han Products for £22 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 £83,000. 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: Prepare computations to show the net advantage or disadvantage of accepting the outside supplier's offer. (Enter all the answers as positive values. Round your per unit answers to 2 decimal place.) Cost of purchasing Cost of making: Direct materials Direct labour Variable overhead Fixed overhead Total cost Rental value of the space (opportunity cost) Total cost, including opportunity cost Net £ 3.40 11.00 2.60 9.00 £26.00 in favour of buying Per Unit Differential Costs Make Buy 32,000 Units Make Buy
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