Question 2

Part A

question with answer

[30 marks]

Bo Digital company has the capacity of producing 50,000 units annually. Budgeted operating results for 2020 are given below on the table

Sales [40,000 @ $28}

Variable costs:

Manufacturing (40,000 at $4.60]

Selling (40,000 at $0.95)

Admin (40,000 at $1.20)

Fixed Cost

Manufacturing

$64,000

Selling & administrative

$ 16,000

Show all your workings

A customer wants to buy 15,000 units at a price of $20 per unit. All fixed cost will decrease by 10% if the special order is accepted. Variable manufacturing costs would increase by 15% per unit for the special order only

REQUIRED

Determine whether the company should produce the special order or not

Show all workings and use the format provided in review

Part B

BUY OR MAKE Question

Buzz LDT management is making a decision of whether to make a part that is used in the making of a Product or to buy it from an outside supplier. Based on its financial report , it seems it costs the company $73.00 per unit to make the component. The cost is broken in the following manner

$

Direct materials

50,000

Direct Labor

58,000

Variable Manufacturing Overhead

28,000

Fixed Manufacturing Overhead

10,000

Company uses 2000 components per year

An supplier , John LTD offered to provide the part at $78.00. Some of the managers believed that they have to consider the proposal because the company may save on the cost

If the company buys the part from the supplier , it can save 10% of fixed manufacturing overhead per unit and the company can rent a part of the factory for $ 12,000 if production of that part is not produced.

REQUIRED

Based upon relevant cost differences, should company make or buy the component . Show the calculation

if you dont understand question look at picture

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