Question

An outside supplier has offered to sell 23,000 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 $73,000. 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.

Answer 1

Make Buy

Direct material 85100

Direct labour 253000

Variable manufacturing overhead 52900

Fixed manufacturing overhead 69000

Opportunity cost 73000

Purchase cost 437000

Total 533000 437000

Financial advantage is 96000

Step-by-step explanation: