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External or in house question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › External or in house question

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 3, 2018 at 2:30 pm #434909
    damien
    Member
    • Topics: 6
    • Replies: 1
    • ☆

    A company wants to decide whether to make its materials in-house or whether to sub-contract production to
    an external supplier. In the past it has made four materials in-house, but demand in the next year will exceed
    in-house production capacity of 8,000 units. All four materials are made on the same machines and require
    the same machine time per unit: machine time is the limiting production factor.
    The following information is available.
    Material W X Y Z
    Units required 4,000 2,000 3,000 4,000
    Variable cost of in-house
    manufacture
    $8 per unit $12 per unit $9 per unit $10 per unit
    Directly attributable fixed
    cost expenditure
    $5,000 $8,000 $6,000 $7,000
    Cost of external purchase $9 per unit $18 per unit $12 per unit $12 per unit
    Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material
    in-house is stopped entirely.
    If a decision is made solely on the basis of short-term cost considerations, what materials should the
    company purchase externally?
    4,000 units of W and 1,000 units of Z
    4,000 units of W and 4,000 units of Z
    3,000 units of Y and 2,000 units of Z
    1,000 units of Y and 4,000 units of Z
    Need help

    February 4, 2018 at 4:57 am #434978
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    Please do not simply set questions and expect an answer – you must have an answer in the same book in which you found the question. You should ask about whatever it is in the answer that you are not clear about, and then I will help you.

    This is all covered in my free lectures on short term decision making.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘External or in house question’ is closed to new replies.

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