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Armidale DingDong Bubbles (ADB) manufactures cricket bats and, including a special part, XIN, that distinguishes ADB's bats from competitors. At the production level of 12500
Armidale DingDong Bubbles (ADB) manufactures cricket bats and, including a special part, XIN, that distinguishes ADB's bats from competitors. At the production level of 12500 units, per unit cost for XIN are as follows: Direct materials Direct manufacturing labour Variable manufacturing overhead Fixed manufacturing overhead $0.70 2.90 1.30 1.70 S6.60 Total Sydney Bubbles (SB) recently made an offer to sell to ADB 10 500 units of the part XIN for $6.20 per part. If ADB accepts SB's offer, the production facility that will be saved could be utilized by ADB to manufacture cricket wickets which will generate an additional operating income of $9500. In addition to this additional income, ADB could also save $0.90 per unit of the XIN's fixed manufacturing overheads. Required a. List down the XIN's per unit costs (individual item as well as total) that are relevant to the decision of whether to accept or reject SB's offer? 2 Marks b. Going by financial considerations only, which alternative is better for ADB and by how much amount, the 'buy' or the 'make' alternative? Show all 'relevant costs' only (totals, not per unit) under both the 'Make' and the 'Buy' alternatives, as applicable, and also show the net financial effect of the Buy' alternative in a separate column, using the 4-column format/table below. 8 Marks Make Buy Effect of Buying Fixed overhead saved... Totals Your decision
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