When you completed your audit of the Surtel Company, management asked for your assistance in deciding...

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When you completed your audit of the Surtel Company, management asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, which is named Faktron, is a component used in some of the finished products of the company. From your audit working papers and from further investigation, you develop the following data as being typical of the company's operations: The annual requirement for Faktrons is 6,000 units. The lowest quotation from a supplier was $8 per unit. Faktrons have been manufactured in the precision machinery department. If Faktrons are purchased from an outside supplier, certain machinery will be sold and would realize its net book value. The following precision machinery department costs apply to the manufacture of Faktrons: direct materials, $15,000; direct labour, $27,000; indirect labour, $7,000; power, $300; other $500. The sale of the equipment used for Faktrons would reduce the following costs by the amounts indicated: depreciation, $2,500; property taxes and insurance, $1,000. The following additional precision machinery department costs would be incurred if Faktrons were purchased from an outside supplier: freight-$0.55 per unit; and, indirect labour for receiving, materials handling, and inspection $3,500. The cost of the purchased Faktrons would be considered a precision machinery department cost. Required: a. Prepare a schedule comparing the total costs of the precision machinery department (1) when Faktrons are made, and (2) when Faktrons are bought from an outsider supplier. (15 marks) b. Discuss the QUANTITATIVE & QUALITATIVE considerations you would bring to the attention of managers in assisting them in deciding whether to make or buy Faktrons. Include in your discussion considerations that might be applied to the evaluation of the outside supplier. (5 marks) When you completed your audit of the Surtel Company, management asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, which is named Faktron, is a component used in some of the finished products of the company. From your audit working papers and from further investigation, you develop the following data as being typical of the company's operations: The annual requirement for Faktrons is 6,000 units. The lowest quotation from a supplier was $8 per unit. Faktrons have been manufactured in the precision machinery department. If Faktrons are purchased from an outside supplier, certain machinery will be sold and would realize its net book value. The following precision machinery department costs apply to the manufacture of Faktrons: direct materials, $15,000; direct labour, $27,000; indirect labour, $7,000; power, $300; other $500. The sale of the equipment used for Faktrons would reduce the following costs by the amounts indicated: depreciation, $2,500; property taxes and insurance, $1,000. The following additional precision machinery department costs would be incurred if Faktrons were purchased from an outside supplier: freight-$0.55 per unit; and, indirect labour for receiving, materials handling, and inspection $3,500. The cost of the purchased Faktrons would be considered a precision machinery department cost. Required: a. Prepare a schedule comparing the total costs of the precision machinery department (1) when Faktrons are made, and (2) when Faktrons are bought from an outsider supplier. (15 marks) b. Discuss the QUANTITATIVE & QUALITATIVE considerations you would bring to the attention of managers in assisting them in deciding whether to make or buy Faktrons. Include in your discussion considerations that might be applied to the evaluation of the outside supplier. (5 marks)

Answer rating: 100% (QA)

a Cost Comparison Schedule Costs when Faktrons are Made Direct Materials 15000 Direct Labor 27000 In... View the full answer