ACCOUNTING FOR MANAGERS

Question 4 (10 marks) Motheo (Pty) Ltd uses 5000 units of part X each year as a component in the assembly of one of its products. The company is currently producing Part X internally at a total cost of R80 000 as follows: Direct material R18 000 Direct Labour R20 000 Variable Manufacturing Overhead R12 000 Fixed Manufacturing Overhead R30 000 Total Costs R80 000 An outside supplier has offered to provide Part X at a price of R13 per unit. If Motheo Company stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated. Required Prepare an analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer