Han Products manufactures 55,500 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 $ 6.66 Direct labour 18.50 Variable overhead 4.44 Fixed overhead 16.65 Total cost per part $ 46.25 An outside supplier has offered to sell 48,000 units of part S-6 each year to Han Products for $38.85 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 $148,000. However, Han Products has determined that 30% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Required: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier’s offer? (Round "Total costs" and final answer to the nearest whole dollar amount.) What is the annual rental value at which the company will be indifferent between the two options? (Round "Total costs" and final answer to the nearest whole dollar amount.)
Han Products manufactures 55,500 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 | $ | 6.66 | |
| Direct labour | 18.50 | ||
| Variable overhead | 4.44 | ||
| Fixed overhead | 16.65 | ||
| Total cost per part | $ | 46.25 | |
An outside supplier has offered to sell 48,000 units of part S-6 each year to Han Products for $38.85 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 $148,000. However, Han Products has determined that 30% of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier.
Required:
1. What is the net dollar advantage or disadvantage of accepting the outside supplier’s offer? (Round "Total costs" and final answer to the nearest whole dollar amount.)
What is the annual rental value at which the company will be indifferent between the two options? (Round "Total costs" and final answer to the nearest whole dollar amount.)
2. Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 60,000 units per year is as follows:
| Direct materials | $ | 6.10 |
| Direct labour | 3.80 | |
| Variable manufacturing overhead | 2.00 | |
| Fixed manufacturing overhead | 4.20 | |
| Variable selling and administrative expense | 2.50 | |
| Fixed selling and administrative expense | 2.40 | |
The normal selling price is $25 per unit. The company’s capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $16 per unit. This order would not affect regular sales.
Assume the company has 1,000 units of this product left over from last year that are vastly inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
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