Products manufactures 40,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per un for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.30 12.00 2.70 6.00 $ 24.00 An outside supplier has offered to sell 40,000 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 $90,000. However, Han Products has determined that two-thirds of the fixedymanufacturing overhead being applied to part S-6 would continu even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
Products manufactures 40,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per un for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.30 12.00 2.70 6.00 $ 24.00 An outside supplier has offered to sell 40,000 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 $90,000. However, Han Products has determined that two-thirds of the fixedymanufacturing overhead being applied to part S-6 would continu even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...
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