LaiACCT3500/Fall 19 (answers to tutorial 5) ADA University, School of Business ACCT3500 Managerial Accounting, Fall 2019 Answers to tutorial 5 – Relevant costs and decision making 1.(a) The relevant costs between the two alternatives are: Make Buy $ $ Direct material 21 - Direct labour 18 - Variable production overhead 12 - Cost of purchase - 75 51 75 Additional costs of manufacturing ($51) are lower than purchase price ($75) from Gypsy Company, therefore Stacey Company should not purchase component X from Gypsy Company. 1.(b) The relevant costs between the two alternatives are: Make Buy $ $ Direct material 21 - Direct labour 18 - Variable production overhead 12 - Opportunity cost of using scarce resource 27 - Cost of purchase - 75 78 75 In such a situation, Stacey Company should buy component X from Gypsy Company. Issue 2: To: Manager of Leather Goods Division From: A Student Date: April 2019 Re: Optimal Production Plan We are told what the monthly demand is and that no stocks of finished goods are held. This means that the total monthly demand equals the normal production. On first sight it looks like the most profitable product that the division makes is the Coat. 1
This provides a profit of £41 each compared with £34 for a briefcase and only £22 for a Dirndl. If there was no limit to what the division could do, it should produce as many coats as possible, followed by briefcases and dirndls. LaiACCT3500/Fall 19 (answers to tutorial 5) However, in the coming months, leather will be in short supply and the division is limited to 3,000 square metres per month. For this reason, it is better to judge which product is the best to
You've reached the end of your free preview.
Want to read all 5 pages?
- Spring '14