Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Articles A B D Bought-out price per unit R. 9.00 Rs. 17.00 Rs. 22.00 Rs. 26.00 Marginal cost (per unit) of 10.00 12.00 15.00 15.00
Articles A B D Bought-out price per unit R. 9.00 Rs. 17.00 Rs. 22.00 Rs. 26.00 Marginal cost (per unit) of 10.00 12.00 15.00 15.00 production Excess of bought-out price -1.00 5.00 7.00 11.00 over marginal cost per article Excess per man-hour -1.00 x 0.25 5.00 x 0.20 7.00 x 0.20 11.00 x 0.33 = -0.25 = 1.00 =1.40 = 3.63 Excess per machine hour -1.00x1 5.00 x 0.50 7.00x0.25 11.00 x 0.20 = -1.00 = 2.50 = 1.75 = 2.20 In case of article A, the bought-out price is lower than the marginal cost, hence to purchase A from outside is always profitable. Ranking of products in order of preference for buying out: (a) When there is no limiting factor 1st A, 2nd B, 3rd C, 4th D (b) When man-power is the limiting factor Ist A. 2nd B. 3rd C, 4th D (c) When machine capacity is the limiting factor Ist A, 2nd, 3rd D, 4th B 6.5.3 DECISION ON METHODS OF MANUFACTURING Marginal costing technique can be used to choose from alternative methods of manufacturing. The method, which generates the highest contribution, is the most desirable method. The decision, therefore, rests on the contribution per unit or the contribution per unit of the limiting factor, if a limiting factor is identified. t31 Example 6.12: An undertaking is producing an article, the selling price of which is Rs. 20 per unit. A decision has to be taken whether (a) to produce by hand (Method A): or (b) to produce by machine, one operator to one machine (Method B); or (c) to produce by machine, one operator to two machines (Method C); or (d) to produce by machine, one operator to three machines (Method D). The cost of manufacturing the article by different methods is as follows: | D 5.00 3.00 200 1.00 5.00 1.70 1.10 1.10 5.00 1.50 1.00 1.50 Method A Cost per article (RU Material 1 unit 5.00 Direct labour Rs. 3 perman-bou SOO Variable overhead Rs. 2 per man-hour 330 Variable overhead e Re. I per machine-1- Hour Total marginal cost 13.30 Fixed overhead Re. I per man-bour 1.70 Fixed overhead Rs. 6 per machine Hour Total cost 15.00 Production per man-hour 0.60 Production per machine-hour 11.00 1.00 6.00 8.00 0.90 6.60 9.00 0.50 900 18.00 1.00 1.00 16.40 18.50 1.75 2.00 0.875 0.66
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started