EXERCISE 9-4 Determining Whether to Make or Buy [LO1- CC4] Han Products manufactures 55,500 units of part S-6 each year

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Exercise 9 4 Determining Whether To Make Or Buy Lo1 Cc4 Han Products Manufactures 55 500 Units Of Part S 6 Each Year 1 (38.06 KiB) Viewed 67 times

EXERCISE 9-4 Determining Whether to Make or Buy [LO1- CC4] Han Products manufactures 55,500 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 Direct labour Variable overhead Fixed overhead Total cost per part $6.66 18.50 4.44 16.65 $46.25 An outside supplier has offered to sell 48,000 units of part S-6 each year to Han Products for $38.85 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 $148,000. 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. Prepare computations to show the net dollar advantage or disadvantage of accepting the outside supplier's offer. 2. What is the annual rental value at which the company will be indifferent between the two options?