edumy Example Shellfish Co makes four components W X Y and Z for which costs in

Edumy example shellfish co makes four components w x

This preview shows page 4 - 6 out of 13 pages.

Email : [email protected] Example Shellfish Co makes four components, W, X, Y and Z, for which costs in the forthcoming year are expected to be as follows. W X Y Z Production (units) 1000 2000 4000 3000 Unit marginal costs $ $ $ $ Direct materials 4 5 2 4 Direct labour 8 9 4 6 Variable production overheads 2 3 1 2 14 17 7 12 Directly attributable fixed costs per annum and committed fixed costs: $ Incurred as a direct consequence of making W 1,000 Incurred as a direct consequence of making X 5,000 Incurred as a direct consequence of making Y 6,000 Incurred as a direct consequence of making Z 8,000 Other fixed costs (committed) 30,000 50,000 Directly attributable fixed costs are all items of cash expenditure that are incurred as a direct consequence of making the product in-house. A sub-contractor has offered to supply units of W, X, Y and Z for $12, $21, $10 and $14 respectively. Should Shellfish make or buy the components? Make or buy decisions with a limiting factor (2) A manufacturing organisation may want to produce items in-house but does not have sufficient capacity to produce everything that it needs, due to a limiting factor on production, such as a shortage of machine time or labour time. (3) In this situation, the decision is not whether to make internally or purchase externally. The decision is about which items to make internally and which to purchase externally. The optimal decision, based on financial considerations alone, is to arrange internal production and external purchasing g in a way that minimises total costs
Image of page 4

Subscribe to view the full document.

___________________________________________________________________________________________________________________ Page 5 of 13 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by Chester Chen Email : [email protected] Example 3 MM manufactures three components, S, A and T using the same machines for each. The budget for the next year calls for the production and assembly of 4,000 of each component. The variable production cost per unit of the final product is as follows. Machine hours Variable cost ($) 1 unit of S 3 20 1 unit of A 2 36 1 unit of T 4 24 Assembly 20 100 Only 24,000 hours of machine time will be available during the year, and a sub-contractor has quoted the following unit prices for supplying components: S $29; A $40; T $34. Required Advise MM. Example 4 TW manufactures two products, the D and the E, using the same material for each. Annual demand for the D is 9,000 units, while demand for the E is 12,000 units. The variable production cost per unit of the D is $10, that of the E $15. The D requires 3.5 kgs of raw material per unit, the E requires 8 kgs of raw material per unit. Supply of raw material will be limited to 87,500 kgs during the year. A sub-contractor has quoted prices of $17 per unit for the D and $25 per unit for the E to supply the product. How many of each product should TW manufacture in order to maximise profits?
Image of page 5
Image of page 6
  • Spring '17

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes