Exercise 11-11 Make or Buy Decision [LO11-3]Han Products manufactures 20,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unitfor part S-6 is:Direct materials.Direct labor$ 3.408.002.60Variable manufacturing overheadFixed manufacturing overhead9.00$23.00Total cost per partAn outside supplier has offered to sell 20,000 units of part S-6 each year to Han Products for $19 per part. If Han Products accepts thisoffer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $70,000.However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continueeven if part S-6 were purchased from the outside supplier.Required:What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

Make or buy decision: It is the decision made by the company to manufacture the product or buy it…

Answered: What is the financial advantage…

Business

Accounting

What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

Financial & Managerial Accounting

14th Edition

ISBN:9781337119207

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter26: Lean Manufacturing And Activity Analysis

Section: Chapter Questions

Problem 26.1APR

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Problem 14-46 (Static) Equipment Replacement and Performance Measures (LO 14-2) Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $4 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $5 million in automated equipment for test machine assembly. The division's expected income statement at the beginning of the year was as follows. Sales revenue $ 16,000,000 Operating costs Variable 2,000,000 Fixed (all cash) 7,500,000 Depreciation New equipment 1,500,000 Other 1,250,000 Division operating profit $ 3,750,000 A sales representative from LSI Machine Company approached Oscar in October. LSI has for $6.5 million a new assembly machine that offers significant improvements over the equipment Oscar bought at the beginning of the year. The new equipment would expand…
Problem 11-75 (Algo) Joint Cost Allocation and Product Profitability (LO 11-7, 8, 9) Prescott Lumber processes logs into grade A and grade B lumber. Logs cost $17,200 per load. The milling process produces 5,000 units of grade A with a market value of $100,800, and 20,000 units of grade B with a market value of 514,400. The cost of the milling process is $22,000 per load. Required: a. If the costs of the logs and the milling process are allocated on the basis of units of output what cost will be assigned to each product? b. If the costs of the logs and the milling process are allocated on the basis of the net realizable value, what cost will be assigned to each product? c-1. How much profit or loss does the grade B lumber provide using the data in this problem and your analysis in requirement (a)? c-2. Is it really possible to determine which product is more profitable? Complete this question by entering your answers in the tabs below. ReqA If the costs of the logs and the milling…
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Problem 14-46 (Algo) Equipment Replacement and Performance Measures (LO 14-2) Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $3.5 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $3.5 million in automated equipment for test machine assembly. The division's expected income statement at the beginning of the year was as follows. Sales revenue $ 15,600,000 Operating costs Variable 2,000,000 Fixed (all cash) 7,100,000 Depreciation New equipment 1,490,000 Other 1,200,000 Division operating profit $ 3,810,000 A sales representative from LSI Machine Company approached Oscar in October. LSI has for $7.6 million a new assembly machine that offers significant improvements over the equipment Oscar bought at the beginning of the year. The new equipment would expand division output by 10…
QS 23-9 Sell or process further LO P2 A company has already incurred $5,000 of costs in producing 6,000 units of Product XY. Product XY can be sold as is for $15 per unit. Instead, the company could incur further processing costs of $8 per unit and sell the resulting product for $21 per unit. Should the company sell Product XY as is or process it further? (Any loss amount should be indicated with minus sign.)
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