Samuel Limited has an annual production of 120,000 units. The production Manager informed that the company has
Question:
Samuel Limited has an annual production of 120,000 units. The production Manager informed that the company has spare capacity to produce an additional 15,000 units. Details regarding unit cost are as follows: $ Direct Materials 160 Labour (40% Variables) 180 Variable Overhead 75 Fixed overhead 120 Total cost 535 A regular customer wishes to place an order of 9000 units and is willing to pay $ 350 for each unit of product.
REQUIRED
(a) Advise whether the company should accept or reject the offer. [5 marks]
(b) Decision making focus on various elements such as (i) cost classification whereby the management accountants need to decide whether to include these costs or ignore and, (ii) Consider the relevant factor which may affect cost behaviour resulting in the accuracy of the cost analysis and finally the relevance of the decision.
Discuss the above statement in the context of whether a company should make a given parts/component that is needed in the manufacture of a product or buy it from an external supplier.
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins