A company manufactures a part that is used to manufacture its final products, and the accounts department
Question:
A company manufactures a part that is used to manufacture its final products, and the accounts department has determined the cost of manufacturing this part as follows:
Total production costs are 10,000 units | Statement |
120000 | Direct materials |
45000 | Direct wages |
30000 | Other variable costs |
30000 | Fixed costs |
There is an offer from an external supplier to supply 8,000 units of this part to the company at a price of 20 riyals per unit.
Required:
Assuming that the company differentiates between three alternatives, which are:
1- Internal manufacturing.
2- Buying from abroad.
3- Buying from abroad while utilizing the available energy in the manufacture of another product that achieves an increase in future revenues of 69,700 riyals and future costs of 55,800 riyals, so what is the best alternative?
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer