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PART 2 MAKE OR BUY DECISION ANALYSIS

  • 1.  PART 2 MAKE OR BUY DECISION ANALYSIS

    Posted 10-03-2022 06:14 AM
    Dear CMA Friends,

    I have accelerated my study since I will tale my exam on 26th of October. So can you please help me to solve this question. Strangely correct answer is I guess calculated from the answers..

    Thanks in advance

    A company accepted a contract to provide 30,000 units of Product A and 20,000 units of Product B. The company's staff developed the following information with regard to meeting this contract.
    Product
    A
    Product
    B
    Total
    Selling price
    $75
    $125
    Variable costs
    $30
    $  48
    Fixed overhead
    $1,600,000
    Machine hours required
       3
         5
    Machine hours available
         160,000
    Cost if outsourced
    $45
    $  60
    The operations manager has identified the following alternatives. Which alternative should be recommended to management?
    Answer (D) is correct.
    The profits under each of the four alternatives would be calculated as follows:
    30,000 Units
    25,000 Units
    20,000 Units
    Rent Additional Capacity
    Sales - A
    $2,250,000
    $2,250,000
    $2,250,000
    $2,250,000
    Sales - B
    2,500,000
    2,500,000
    2,500,000
    2,500,000
    Total sales
    $4,750,000
    $4,750,000
    $4,750,000
    $4,750,000
    Variable cost A
    900,000
    750,000
    600,000
    900,000
    Variable cost B
    672,000
    816,000
    960,000
    960,000
    Purchase of A
    0
    225,000
    450,000
    0
    Purchase of B
    360,000
    180,000
    0
    0
    Fixed costs
    1,600,000
    1,600,000
    1,600,000
    1,750,000
    Total costs
    $3,532,000
    $3,571,000
    $3,610,000
    $3,610,000
    Net income
    $1,218,000
    $1,179,000
    $1,140,000
    $1,140,000
    Thus, making 30,000 units of Product A produces the greatest profit.


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    TIMUCIN ONER
    Director/Manager
    ANTALYA
    Turkey
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