Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this

Han Products manufactures 30,000 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 …………..                      $  3.60

Direct labor …………….                          $10.00

Variable manufacturing overhead     $  2.40 Fixed manufacturing overhead ..       $  9.00

Total cost per part …………                  $25.00

 

An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 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 manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.

Computations showing how much profit will increase or decrease if the outside supplier’s offer is accepted is required.