2 Exercise 12-11 Make or Buy Decision [L012-3 10 points Han Products manufacture

Question

2 Exercise 12-11 Make or Buy Decision [L012-3 10 points Han Products manufactures 37000 units of part S-6 each year for part S-6 is: use on its production line. At this level of activity, the cost per unit for 0407) Direct materials $3.60 9.00 2.40 Direct labor Variable manufacturing overhead Fixed manufacturing overbead Total cost per part 21.00 An outside supplier has offered to sell 37000 units of part $-6 each year to Han Products for $19 per part. If offer, the facilities now being used to manufacture part S-6 could be even if part S-6 were purchased from the outside supplier Required: Products has determined that two-thirds of the flixed manufacturing overhead being applied to part s-6 would continue What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Answer is complete but not entirely correct Financial advarntage 5 72150o

Explanation / Answer

Calculate financial advantage :

If buy from outside supplier then financial advantage is (716000-703000) = $13000

Make Buy Direct material 133200 Direct labour 333000 Variable manufacturing overhead 88800 Fixed manufacturing overhead 74000 Opportunity cost 87000 Purchase cost 703000 Total cost 716000 703000

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