Question
can someone help me with this question (a) A company manufactures and sells three components but has requested its purchasing manager to investigate the prices
can someone help me with this question
(a) A company manufactures and sells three components but has requested its purchasing manager to investigate the prices of an overseas producer. The following costs and prices are made available:
Component | X | Y | Z |
Production (units) | 20,000 | 40,000 | 80,000 |
Direct material cost, per unit | $0.80 | $1.00 | $0.40 |
Direct labour cost, per unit | $1.60 | $1.80 | $0.80 |
Direct expense cost, per unit | $0.40 | $0.60 | $0.20 |
Fixed cost per unit | $0.80 | $1.00 | $0.40 |
Selling price each | $4.00 | $5.00 | $2.00 |
Imported price | $2.75 | $4.20 | $2.00 |
Your recommendation to management as to whether any component should be purchased on the basis of cost only.
The profit figure the company will make by producing all the components itself
State if your recommendation in (1) above is likely to affect the profit and by how much.
Assuming management proposes to go ahead and import some of the components, what matters would you bring to their attention.
(b) One of the company's European agents has placed orders which were not previously anticipated, for 4,000 of Component Y and 8,000 of Component Z. If these are produced the purchasing manager will be able to negotiate a 10% reduction on all material costs providing these and the original quantities of X, Y and Z are manufactured. Overtime will have to be worked on the export order involving a 25% premium. What will be the increase in profits assuming that Component X is also manufactured?
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