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.
ACCA Forums
PMmake versus buy
12y ago#1Either 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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