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Make or buy decisions with scarce resources

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Make or buy decisions with scarce resources

  • This topic has 2 replies, 2 voices, and was last updated 7 years ago by AvatarJohn Moffat.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • July 10, 2018 at 2:34 pm #461518
    Avatargbay
    Participant
    • Topics: 14
    • Replies: 18
    • ☆

    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 of4,000 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
    Only 24,000 hours of machine time will be available during the year, and a subcontractor has quoted the following unit prices for supplying components: S $29; A $40; T $34.
    Required
    Advise MM.

    Dear John, the solution of above question is clear for me, it is based on extra variable cost of buying per hour saved, so:
    to make S and T – total V.C. is $152000
    to buy T and A – total V.C. is $346000

    My question, why we do not rank product based on variable cost per machine hour? If so:
    to make A(4000 un), S (4000un) and T (1000un) – total V.C. is $248000
    to buy T (3000 un) – total V.C. $102000
    It seems much cheaper for MM …. or I misunderstand something 🙁

    July 13, 2018 at 8:45 am #461995
    Avatargbay
    Participant
    • Topics: 14
    • Replies: 18
    • ☆

    Dear John, please ignore above question as I did miscalculation. I got it, thanks.

    July 13, 2018 at 2:46 pm #462085
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    No problem – I am pleased that you have now got it 🙂

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • The topic ‘Make or buy decisions with scarce resources’ is closed to new replies.

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