Question
A manufacturing company produces four different types of raw materials: A, B, C, and D. The costs of producing these raw materials are expected to
A manufacturing company produces four different types of raw materials: A, B, C, and D. The costs of producing these raw materials are expected to be as follows: A B C D Production (units) 2,000 4,000 8,000 6,000 Total Variable cost: Direct Material $16,000 $40,000 $32,000 $48,000 Direct Labour $32,000 $72,000 $64,000 $72,000 Variable Production Overhead $8,000 $24,000 $16,000 $24,000 Directly attributable fixed costs per annum are as follows: Incurred as a direct consequence of making A $2,000 Incurred as a direct consequence of making B $10,000 Incurred as a direct consequence of making C $12,000 Incurred as a direct consequence of making D $16,000 Other committed fixed costs $60,000 A subcontractor who is fairly new to the market agreed to supply the same raw materials of A, B, C, and D for $24, $42, $20, and $28, respectively. Required: a) Determine whether the manufacturing company should make or buy the components (show the working for each component). Justify your answer. (4 marks) b) Discuss the other factors that the manufacturing company should consider in making the decision in part (a). (6 marks)
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