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Dear Mr Moffat,
I did below question but it still not completely clear to me the answer provided. Could you kindly help?
A company produces three components on the same machine. The components are used in the manufacture of a finished product. The budget for next year indicates a requirement for 3000 units of each component, but only 60000 of machine time will be available. Additional components and be purchased from an external supplier to meet any production shortfall.
Component Machine hour per unit VC per Unt Purchase Price Per unit
A 9 45 65
B 5 70 78
C 12 56 80What is the minimum total variable cost at which the 3000 units of all three components can be obtained?
Answer Machine hours Variable Cost
Make A 3000 units 27000 135000
Make C (balance 2750) 33000 154000Buy 250 C at 80 20000
Buy 3000 B at 78 234000Total 534000
Why has the cost of buying material been included in the calculation of the variable cost?
When I did the question I only considered 135000+154000.Thanks
Gabbi
But materials are a variable cost. If they do not buy the materials then they cannot produce the units 🙂
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