Access Inc makes electrically-driven disability scooters aimed atelderly and/or disabled customers. At present wheels and tyres arebought from external suppliers but all other parts are manufacturedin-house. The scooters have a strong reputation due mainly to innovativedesigns, special power units that can be recharged at home and seatsthat enable easy access for a wide range of disabilities. Access Incalso sells power units to other firms.

Current monthly costs are as follows.

Note: The power unit department currently produces 90 units amonth – 60 being used in Access' own scooters, and 30 being soldexternally at $376 each.

A new order has been won to supply an additional 10 scooters permonth. However, the directors are considering how best to meet theadditional demand:

• Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labour and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month.
• The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is $610 per assembly.

Required:

(a) Based on the figures given, show whetherAccess should make or buy the extra seats. Discuss what other factorsshould be considered before a final decision is taken to make or to buythe extra seats.

(10 marks)

(b) Comment on the relevance of the apportioned overhead cost figures to your recommendation.
 

Transcribed Image Text:

Seating Department Power unit Department $ $ Costs Direct materials 9,300 4,140 Direct labour 12,600 9,450 Apportioned overheads 26,700 17,200 48,600 30,790 Production level 60 units 90 units Seating Department Power unit Department $ $ Costs Direct materials 9,300 4,140 Direct labour 12,600 9,450 Apportioned overheads 26,700 17,200 48,600 30,790 Production level 60 units 90 units

Answer rating: 100% (QA)

a To determine whether Access Inc should make or buy the extra seats we need to compare the costs associated with each option 1 Making the Seats InHou... View the full answer