MCQ kaplan

This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.

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December 23, 2019 at 7:33 am #556338
maxpopper
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P is considering whether to continue making a component or to buy it from an outside supplier. It uses12000 of components each year
The internal manufacturing cost consist
$ per unit
DM 3
DL 4
VOH 1
Specific FC 2.5
other FC 2

If DL were not used to manufacture the component it would be used to increase production of another item for which there is unlimited demand. This other item has contribution of $10 per unit but requires $8 of labour per unit.

What is max price per component, at which buying is preferable to internal manufacture

Here in solution, direct labour they have taken $9 i.e ( 10/2 + 4). Sir here how they have taken contribution forgone 10/2 ?
December 23, 2019 at 2:01 pm #556355
John Moffat
Keymaster
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Because the other item requires $8 of labour, whereas the the item we are considering only takes $4 of labour, it means that this item must only take half the time of the other item (and therefore generate half the contribution per hour).
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