Question 3: (16 marks) F-50 is a unique sub-assembly component. Archie Ltd is the only manufacturer...

 

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Question 3: (16 marks) F-50 is a unique sub-assembly component. Archie Ltd is the only manufacturer of F-50 in regional Victoria. On average, the company manufactures and sells around 50,000 units of F-50 per year. The annual costs and operating data for manufacturing 50,000 units are as follows: Direct material Direct labour hours required Labour rate per hour Manufacturing overhead Production clerk's wages Equipment leasing Depreciation of building (allocated) Number of set-ups required Cost per set-up Quality control inspection at $80 per hour Head-office expenses (allocated) Waste per unit $325,000 4,000 $50 $300,000 $45,000 $40,000 $12,000 30 $400 120 hours $25,000 0.005 kilograms The additional information includes: • The direct material costs are expected to decrease by 5% in the coming period. • The direct labour rate is expected to increase by 10% in the coming period. • The company's annual manufacturing overhead budget is 40% variable and 60% fixed. The fixed manufacturing overhead costs are not expected to change in the short-term irrespective of whether F-50 is manufactured in-house or outsourced. • Equipment leasing costs represent special equipment that is used to manufacture F-50. One of Archie Ltd's overseas suppliers has offered to supply 50,000 units of F-50 at a unit price of $7. This supplier is interested in entering into a long-term arrangement with the company beyond 2016. If the company decides to purchase from the overseas supplier: • the equipment lease will have to be terminated with a penalty of a payment of 30% of the given annual amount. a long-standing local contract for the sale of 8,000 units that yields a contribution margin of $10 per unit will have to be terminated (mainly due to a longer delivery time). . the vacant factory space will be rented out for $24,000 per year. • the quality control inspection hours are likely to be doubled. • the existing production clerk will be transferred to the purchasing unit. the waste per unit is likely to increase by three times. ●. If this deal for F-50 is managed successfully, the company may close down the manufacturing operations and become a distributor for this product. This has got the employees worried. Required: Prepare an analysis of all relevant costs to determine whether Archie Ltd should manufacture 50,000 units of F-50 or purchase from the overseas supplier in 2016 and beyond. Click or tap here to enter text. Question 3: (16 marks) F-50 is a unique sub-assembly component. Archie Ltd is the only manufacturer of F-50 in regional Victoria. On average, the company manufactures and sells around 50,000 units of F-50 per year. The annual costs and operating data for manufacturing 50,000 units are as follows: Direct material Direct labour hours required Labour rate per hour Manufacturing overhead Production clerk's wages Equipment leasing Depreciation of building (allocated) Number of set-ups required Cost per set-up Quality control inspection at $80 per hour Head-office expenses (allocated) Waste per unit $325,000 4,000 $50 $300,000 $45,000 $40,000 $12,000 30 $400 120 hours $25,000 0.005 kilograms The additional information includes: • The direct material costs are expected to decrease by 5% in the coming period. • The direct labour rate is expected to increase by 10% in the coming period. • The company's annual manufacturing overhead budget is 40% variable and 60% fixed. The fixed manufacturing overhead costs are not expected to change in the short-term irrespective of whether F-50 is manufactured in-house or outsourced. • Equipment leasing costs represent special equipment that is used to manufacture F-50. One of Archie Ltd's overseas suppliers has offered to supply 50,000 units of F-50 at a unit price of $7. This supplier is interested in entering into a long-term arrangement with the company beyond 2016. If the company decides to purchase from the overseas supplier: • the equipment lease will have to be terminated with a penalty of a payment of 30% of the given annual amount. a long-standing local contract for the sale of 8,000 units that yields a contribution margin of $10 per unit will have to be terminated (mainly due to a longer delivery time). . the vacant factory space will be rented out for $24,000 per year. • the quality control inspection hours are likely to be doubled. • the existing production clerk will be transferred to the purchasing unit. the waste per unit is likely to increase by three times. ●. If this deal for F-50 is managed successfully, the company may close down the manufacturing operations and become a distributor for this product. This has got the employees worried. Required: Prepare an analysis of all relevant costs to determine whether Archie Ltd should manufacture 50,000 units of F-50 or purchase from the overseas supplier in 2016 and beyond. Click or tap here to enter text.

Answer rating: 100% (QA)

MANUFACTURING MATERIAL 3250005 308750 LABOUR 4000505010 180000 OVERHEAD VARI... View the full answer