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Xian Products manufactures 45,000 units of part S-6 each year for use on its production...

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Accounting

Xian Products manufactures 45,000 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 $ 5.00
Direct labour 11.00
Variable overhead 4.00
Fixed overhead 9.90
Total cost per part $ 29.90
An outside supplier has offered to sell 39,500 units of part S-6 each year to Han Products for $26.50 per part. If Xian 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 $96,000. However, Xian 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.

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