Question

An outside supplier has offered to sell 23,000 units of part S-6 each year to Han Products for $22 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 $73,000. 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.

Answer 1

Answer:

                                                       Make Buy

Direct material                              85100  

Direct labour                                      253000  

Variable manufacturing overhead     52900  

Fixed manufacturing overhead       69000  

Opportunity cost                               73000  

Purchase cost                                         437000

Total                                               533000   437000

Financial advantage is 96000    

Explanation: