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Additional practice questions-special decision making issues

Additional practice questions-special decision making...

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Topic: Special Decision Making Issues Additional Practice Questions Make or buy The Machinery Department of Baxter Pty Ltd produces a number of components, including one called Factron, for use in various finished products. The following are the total costs of the Machinery Department estimated for the current year when 5000 Factrons are to be produced. Also shown are the avoidable costs relating to the manufacture of Factron. Total Costs Factron Costs Materials $67,500 $17,500 Direct labour 50,000 28,000 Indirect labour 20,000 6,000 Light and heat 5,500 3,000 Power 3,000 300 Depreciation 10,000 Insurance 8,000 Payroll tax 9,800 4,800 Other 5,000 500 An outside organisation offers to supply Factrons for $10.00 per unit. The sale of equipment used to produce Factrons would reduce depreciation by $2000 per annum and insurance by $1000 per annum. Additional costs incurred if Factron components are purchased are estimated to be freight $0.50 per unit and $5000 per annum for costs of receiving, inspecting and storing of Factrons. Required: If Baxter Pty Ltd decides to buy 5000 Factrons on an ongoing basis from this outside supplier, what will be the effect on annual costs?
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