QUESTION 5

5.1 Use the information given below to answer the following questions: Should Boult Limited make or buy the component? Support your answer with the relevant calculations.

5.1.1 (6 marks) Identify TWO (2) qualitative factors that Boult Limited should consider before making the decision to buy or make the component.

INFORMATION Boult Limited manufactures a component for one of its products. The cost per unit of the component is expected to be R70 for materials and R50 for direct labour. The manufacturing overheads are estimated to be R100 per unit, 20% of which are variable. The company has sufficient capacity to manufacture 21 000 units of the component. An analysis revealed that the component can be purchased from an outside supplier at a cost of R200 per unit.

5.2 Study the information provided below and answer the following questions:

5.2.1 Does Todd Limited have spare capacity to accept the special order? Motivate your answer. (2 marks)

5.2.2 Should the company accept the special order? Show all the relevant calculations. (6 marks)

5.2.3 Explain TWO (2) possible disadvantages to Todd Limited of accepting the special order. (4 marks)

INFORMATION Todd Limited expects to manufacture 36 000 units of Product J, using 90% of its normal capacity. The costs to manufacture 36 000 units of Product J are as follows: Fixed manufacturing overheads 360 000 Variable manufacturing overheads 75 600 Direct materials cost 259 200 Direct labour cost 201 600 Variable marketing costs 68 400 Fixed marketing and administrative costs 640 000 The selling price is R42 per unit. However, a customer has offered to pay R24 per unit for an additional 3 800 units.