Reference no: EM132605191

An Products manufactures 25,000 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 as follows:

Direct materials $3.00

Direct labour 9.00

Variable overhead 2.00

Fixed overhead 8.70

Total cost per part $22.70

An outside supplier has offered to sell 25,000 units of part S-6 each year to Han Products for $20.50 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 $80,000. However, Han Products has determined that two-thirds of the fixed overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.

Required:

Question 1: What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round intermediate calculations)