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Just answer E,F and G please? Aviation Ltd makes drones. They currently outsource the production of parts to an Australian based supplier and do all
Just answer E,F and G please? Aviation Ltd makes drones. They currently outsource the production of parts to an Australian based supplier and do all the assembly in house. The fixed costs of operating their workshop for a month total $5500. Each drone requires parts which cost $375 and takes 5 hours to assemble. Assembly line staff are all contract staff and are paid $45 per hour. The drones are sold for $900 each. Currently Aviation Ltd sells 120 drones per month. The managers are considering hiring a machine that will in fact make the parts required. Using the machine would reduce materials cost to $220 and assembly time to 4 hours but increase fixed costs to $27500. Required: a. Calculate the breakeven point in units and in sales $s if Aviation Ltd continues to (i) outsource parts from an external supplier. b. Calculate the breakeven point in units and sales $s if the company (ii) hires a machine to make the parts. c. For each of the scenarios (i) and (ii) estimate the profit for the month. d. Calculate the margin of safety for each of scenarios (i) and (ii). e. On the basis of the calculations in a, b, c, and d, and considering operating gearing, which option do you think is best and why? f. List four factors other than those that are financially quantifiable would you consider when making the decision. g. The manager of production has come to you with two suggestions going forward. He wants to continue to outsource the parts from a firm based in China in order to reduce the cost from $375 to $310 per unit and employ more qualified assemblers by paying $60 per hour which would reduce assembly time to 4 hours. He thinks his suggestions will allow us to reduce the price of the drones to $850 as a result of cheaper parts, improve the quality of the product with more skilful assemblers and allow us to increase sales to $130 per month. Would you take his advice? Explain in terms of both quantifiable and qualitative considerations
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