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make versus buy

Forums › ACCA Forums › ACCA PM Performance Management Forums › make versus buy

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • September 28, 2014 at 2:33 pm #202043
    squirrel25
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Hello everyone,

    Can someone help me to understand the solution to the question?
    The question is:

    A company plans to build an extension to its factory. The estimated costs of carrying out the work inhouse are as follows:
    Materials – 58,500
    Labour – 32,800
    Additional overheads – 17,200
    Allocated fixed overheads – 8,200
    Total – 116,700

    An outside contractor has bid €110,000 for the job.
    What is the net gain or loss if the company does its own construction work?
    A €35,200 loss
    B €27,000 loss
    C €6,700 loss
    D €1,500 gain

    The solution is:

    B
    Relevant costs if built inhouse, €000:
    Materials – 58.5
    Labour – 32.8
    Additional overheads – 17.2
    Lost contribution – 28.5
    Total – 137
    Contract price of outside supplier – 110.0
    Difference = Loss if done inhouse – 27.0

    I can’t understand how this lost contribution of 28.5 was calculated.

    Many thanks for your help.

    September 28, 2014 at 4:33 pm #202055
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Either you have left out part of the question, or the book in which you found this has left out part of the question!!

    There will be a lost contribution if it were the case that to do the work in house it would mean taking the workers away from other jobs.

    Check the question again in case you did miss a bit. Otherwise, you should complain to whoever wrote the book because they have missed out part of the question 🙂

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