Han products manufacturer unit 37500 of parts S-6 each year for use on its production line
Answers
Answer:
Han Products manufactures 37,500 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$4.25Direct labour 10.25Variable overhead 3.25Fixed overhead 9.45Total cost per part$27.20
An outside supplier has offered to sell 33,000 units of part S-6 each year to Han Products for $24.25 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 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.)