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  • 1.  2C Decision analysis: Make or buy

    Posted 09-12-2020 03:22 AM
    Can anyone guide me how to solve this, please? Thanks in advance

    211. CSO: 2C2d LOS: 2C2n
    Synergy Inc. produces a component that is popular in many refrigeration systems. Data on three of the five different models of this component are as follows.
    image.png
    Synergy applies variable overhead on the basis of machine hours at the rate of $2.50 per hour. Models A and B are manufactured in the Freezer Department, which has a capacity of 28,000 machine processing hours. Which one of the following options should be recommended to Synergy's management?
    a. Purchase all three products in the quantities required.
    b. Manufacture all three products in the quantities required.
    c. The Freezer Department's manufacturing plan should include 5,000 units of Model A and 4,500 units of Model B.
    d. The Freezer Department's manufacturing plan should include 2,000 units of Model A and 6,000 units of Model B.

    Correct answer c. The option (a) of purchasing externally is more costly the manufacturing internally, because Fixed OH costs are not avoidable. The option (b) is not possible due to the capacity restrictions. This leaves options (c) and (d), with option (d) being more costly than (c).


  • 2.  RE: 2C Decision analysis: Make or buy

    Posted 09-13-2020 02:29 AM

    This should be calculated based on contributions margin and theory of constraints below illustrated 
    Total VC for product A is $15 FC not included 
    Total VC for product B is $34 same Excludes FC 
    no department have to capacity of 28k hrs therefore we will take the product with lower cost outflows to produce at full capacity 

    A 15/2hrs=7.5 ( $21 -$7.5)= 13.5
    B 34/4hrs =8.5 ($42 -$8.5)= 33.5
    $5/$2.5 average rate VOH = 2hrs and so fourth for product B 

    5000units @2hrs = 10,000hrs remain 18,000 hrs /4 = 4500 units 



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    Maher Alsweis
    Financial Controller
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    Original Message


  • 3.  RE: 2C Decision analysis: Make or buy

    Posted 09-13-2020 03:22 AM
    for this type of question, i would suggest you use the options you have as mcq instead of doing it all by yourself.

    a. if purchased all:
    A= (21$+11) x 5,000 = 160,000
    B= (42$+20) x 6,000 = 372,000
    C= (39$+17) x 3,000 = 168,000
    Total= 700,000$
    Note that the fixed OH is unavoidable.

    b. if manufactured all:
    A= 26$ x 5,000 = 130,000
    B= 54$ x 6,000 = 324,000
    C= 52$ x 3,000 = 156,000
    Total= 610,000$
    *option b is less costly than option a, but we are not able to continue with option b since we have a limited capacity of machine hours for model A and Model B. To check for how many hours constitutes each model we do the following: 

    Model A= 5$/unit divided by 2.5$/hr = 2hrs/unit x 5,000 units = 10,000 hrs for model A (2.5$/hr times X = 5$/unit; where X would be hr/unit)
    Model B= 10$/unit divided by 2.5$/hr = 4hrs/unit x 6,000 units = 24,000 hrs for model B (2.5$/hr times X = 10$/unit; where X would be hr/unit)
    Total of hrs A+B= 34,000 hrs which is higher than 28,000 hrs

    c. if 5,000 units A manufactured and 4,500 units B manufactured => 1,500 units B purchased:
    A= 130,000
    B= (4,500 x 54$) + (1,500 x 42) = 306,000
    Total= 436,000$ + 156,000$(C) = 592,000

    d. if 2,000 units A manufactured => 3,000 units A purchased and 6,000 units B manufactured:
    A= (2,000 x 26$) + (3,000 x 21$) = 115,000
    B= 324,000
    Total= 115,000 + 324,000 + 156,000 = 595,000

    C is the correct answer since it gave us the least costly value out of all 3 options

    ------------------------------
    Michel Joseph Christian Mitri
    Accountant
    Kornet Chehwan
    Lebanon
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    Original Message