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- July 1, 2017 at 7:03 pm #394494
Dear Sir
I am trying a Kaplan question on Limiting Factors.
P is considering whether to continue making a component or to buy it from an outside supplier. It uses 12,000 of the components each year.
The internal manufacturing cost comprises (per unit) :
Direct material – $3.00 / Direct labour $4.00 / Variable overhead $1.00 / Specific fixed overhead $2.50 / Other fixed costs $2.00If the direct labour were not used to manufacture the component, it would be used to increase the production of another item for which there is unlimited demand. This other item has a contribution of $10.00 per unit but requires $8.00 of labour unit.
What is the maximum price per component, at which buying is preferable to internal manufacture?
I have tried working contribution per labour hour for the unlimited demand component but cannot make any association with the required answer. Any help please?
July 2, 2017 at 5:23 am #394505Dear Sir,
I’ve noticed you had already replied to this question.
I will watch the lecture on relevant costing.
Thank you.
July 2, 2017 at 9:38 am #394515OK – but do ask again if you are still not clear after watching the lecture 🙂
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