The following is the unit cost structure of the three components used in a machine produced...

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The following is the unit cost structure of the three components used in a machine produced by Auto-make Ltd: Cost structure (Per unit) Direct material Direct labour Direct expenses Fixed overheads Product A Tshs.000 Components Product B Tshs.000 Product C Tshs.000 45 44 35 21 145 26 24 8 22 10 5 5 10 Production cost 49 61 The direct expenses given above are related to the pressing machine that costs Tzs 5,000 per hour. These components are also available in the market at A = Tshs.49,000; B = Tshs.45,000; C=Tshs. 145,000. Production requirement (in units) A = 3,700; B = 1,600; C = 1,900. Auto-make Plc has a metal pressing capacity of 18,000 hours, which is not sufficient to produce all three components required in the machine. Therefore, management is considering the alternative of working in two shifts. Operating in two shifts would increase the wage by 30%. Fixed costs would increase by Tshs.1,800,000. REQUIRED: (a) Advise the management on which components should be manufactured in-house and which should be bought from the market (15 marks) (b) Advise the management of Auto-make Plc whether or not to work in the second shift to produce the remaining units) (5 marks) (Total: 20 marks) The following is the unit cost structure of the three components used in a machine produced by Auto-make Ltd: Cost structure (Per unit) Direct material Direct labour Direct expenses Fixed overheads Product A Tshs.000 Components Product B Tshs.000 Product C Tshs.000 45 44 35 21 145 26 24 8 22 10 5 5 10 Production cost 49 61 The direct expenses given above are related to the pressing machine that costs Tzs 5,000 per hour. These components are also available in the market at A = Tshs.49,000; B = Tshs.45,000; C=Tshs. 145,000. Production requirement (in units) A = 3,700; B = 1,600; C = 1,900. Auto-make Plc has a metal pressing capacity of 18,000 hours, which is not sufficient to produce all three components required in the machine. Therefore, management is considering the alternative of working in two shifts. Operating in two shifts would increase the wage by 30%. Fixed costs would increase by Tshs.1,800,000. REQUIRED: (a) Advise the management on which components should be manufactured in-house and which should be bought from the market (15 marks) (b) Advise the management of Auto-make Plc whether or not to work in the second shift to produce the remaining units) (5 marks) (Total: 20 marks)

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b Automake plc should not wor... View the full answer