Question

# Han Products manufactures 17,000 units of part S-6 each year for use on its production line....

Han Products manufactures 17,000 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 \$ 3.80 Direct labor 6.00 Variable manufacturing overhead 3.60 Fixed manufacturing overhead 12.00 Total cost per part \$ 25.40

An outside supplier has offered to sell 17,000 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 \$444,200. 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. (Round your "per unit" answers to 2 decimal places.)

2. How much will profits increase or decrease if the outside supplierâ€™s offer is accepted?

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