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What is financial advantage of accepting supplier offer

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Question - Han Products manufactures 26,000 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 $4.00

Direct labor 9.00

Variable manufacturing overhead 2.00

Fixed manufacturing overhead 9.00

Total cost per part $24.00

An outside supplier has offered to sell 26,000 units of part S-6 each year to Han Products for $20 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 $76,000. 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 - What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

Reference no: EM132566395

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