Please help with this question it is an accounting question. The question has 2
ID: 2467689 • Letter: P
Question
Please help with this question it is an accounting question. The question has 2 parts A and B. Thank you very much Han Products manufactures 30,000 units of part S-6 each year for use on its producion line. At this leveil of activity, the cost per unit for part S-6 is: its production line. At this level of Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead S5.30 7.00 4.00 12.00 Total cost per part $ 28.30 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $50.00 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 $886,000. 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. Required: a. Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.) 30,000 Units Differential Costs Make Bu Make Buy Cost of purchasing Cost of making Direct materials Direct labor Variable overhead Fixed overhead 0.00 0.s OS $ 0.00 $ 0.00 s Total cost b. How much will profits increase or decrease if the outside supplier's offer is accepted?Explanation / Answer
a.
Calculation of Per Unit and Total Relevant cost for Buying and making the product:
Per Unit Differential costs
30,000 Units
Make
Buy
Make
Buy
Cost of Purchasing
$ -
$50.00
$ -
$1,500,000.00
Cost of Making:
Direct Materials
$ 5.30
$ -
$ 159,000.00
$ -
Direct Labor
$ 7.00
$ -
$ 210,000.00
$ -
Variable Manufacturing Overhead
$ 4.00
$ -
$ 120,000.00
$ -
Fixed Manufacturing Overhead
$ 33.53
$ -
$1,005,900.00
$ -
($12*1/3) + (886000 / 30000)
Total Cost
$ 49.83
$50.00
$1,494,900.00
$1,500,000.00
b.
Calculation of increase or decrease in profits if outside supplier's offer is accepted:
Total cost under make option (A)
$ 1,494,900.00
Total cost under Buy option (B)
$ 1,500,000.00
Decrease in Profits = B-A =
$ 5,100.00
a.
Calculation of Per Unit and Total Relevant cost for Buying and making the product:
Per Unit Differential costs
30,000 Units
Make
Buy
Make
Buy
Cost of Purchasing
$ -
$50.00
$ -
$1,500,000.00
Cost of Making:
Direct Materials
$ 5.30
$ -
$ 159,000.00
$ -
Direct Labor
$ 7.00
$ -
$ 210,000.00
$ -
Variable Manufacturing Overhead
$ 4.00
$ -
$ 120,000.00
$ -
Fixed Manufacturing Overhead
$ 33.53
$ -
$1,005,900.00
$ -
($12*1/3) + (886000 / 30000)
Total Cost
$ 49.83
$50.00
$1,494,900.00
$1,500,000.00
b.
Calculation of increase or decrease in profits if outside supplier's offer is accepted:
Total cost under make option (A)
$ 1,494,900.00
Total cost under Buy option (B)
$ 1,500,000.00
Decrease in Profits = B-A =
$ 5,100.00