Question

Han Products manufactures 27,000 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:Direct materials $ 5.70Direct labor 8.00Variable manufacturing overhead 3.70Fixed manufacturing overhead 12.00Total cost per part $ 29.40An outside supplier has offered to sell 27,000 units of part S-6 each year to Han Products for $43.00 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 $570,200. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.Required:1. Calculate the per unit and total relevant cost for buying and making the product

Answer 1

Cost of making the 27.000 units is 793.800/ Cost of buying the product is 1.161.000 / Net cost and revenues if the goods are bought 806.800

Step-by-step explanation:

* In this case the cost of making the units can be calculated in this way

Unit cost * Units = 29.40 * 27.000 = 793.800

* the cost of buying them can be calculated in this way

unit cost * units = 27.000*43 = 1.161.000

* Since the statement said that there are two factors to take in mind derivative of the second option we have to add to the cost of good the cost of the fixed manufacturing overhead. since it said that it is 2/3 the formula is

Units * manufacturing overhead cost /3*2= 27.000*12/3*2= 216.000

then to the total cost of buying add the manufacturing overhead cost that will be keep - the revenue for renting

1.161.000+216.000-570.200 = 806.800