Keview VIEW Mailings viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing Question 1 Teddy plc. manufactures and sells motorised bicycle equipment. Occasionally it buys in a product rather than produce it if it is cheaper to do so. One of Teddy ple's customers has requested 400 engines. The management of Teddy plc. are currently deciding whether to outsource the engines to Gem Ltd at a price of 150 each or to produce them in-house. The management accountant has provided you with the following information relating to the costs involved in the production of the engines in-house. 1 Teddy plc, will use three types of material in the production of the engines and will have sufficient inventory on hand to meet their production requirements. It is estimated the 400 engines will require 850 kg's of metal, 200 kgs of Aluminium and 280 kg of Fiberglass. Teddy plc always maintains a stock of metal as it is used in the production of its other products. This material was purchased for 15.40 per kg two weeks ago, but since then has risen to 16.10 per kg. Its realisable value is 14 per kg. The inventory on hand of aluminium was purchased several months ago for e17 per kg for use in another project. However, 300 kg was left over as the purchasing manager over ordered. Management does not have any use for the aluminium other than in the production of the engines. The current purchase price is 16 per kg and Teddy plc. will receive El per kg if it chooses to sell the aluminium. There are 280 kg of fiberglass in inventory which was purchased recently for 12 per kg. If the fiberglass is not used in the production of the engines, it will have to be disposed of due to its potential harmful effects. A local disposal company will transport the material to an incinerator for 5 per kg and the incinerator will charge 3 per kg to dispose of the material. 2 Skilled direct labourers are paid a weekly wage of 1,000 each and are currently under- utilised. It is expected that 300 hours of skilled labour required to produce the engines will be resourced out of what is currently classified as 'idle time. It is expected that this order will require four skilled workers and will take two weeks to complete. The manufacture of the engines will require 5 unskilled workers for 10 days. This unskilled direct labour relates to hours worked by casual employees who are employed as required and paid an hourly rate of 15 per hour. The skilled and unskilled labourers work 8-hour days, 5 days per week. TE contain virusos. Unless you need to edit, it's safe to stay in Protected View. Enable Editing 3 Variable overheads are absorbed at a rate of 12 per skilled labour hour. 4 Teddy ple have been notified by head office that they are to receive an additional fixed overhead allocation of 4,800 to cover ongoing head office support costs. If the company decides to produce the engines, it is estimated that incremental fixed overheads will amount to 11,200. 5 If the machinery is not required for the production of the engines, it may be hired out for 80 per direct skilled labour hour. 6 Teddyplc.charge depreciation on its machinery and the depreciation charge is expected to be 2,000 for the duration of the manufacture of the engines. 7 Teddy plc hired an accountant for one week to carry out a review of competitors' prices before it accepted this order. This review cost 1,500, half of which has been phid. You are required to: (a) Provide a brief explanation, using examples from the question for each of the following terms: Opportunity cost (1) Sunk cost (1) Committed cost (12 Marks) (b) Based on the financial information provided above, recommend whether Teddy plc. should produce the engines internally or purchase them from Gem Ltd. Support your answer with relevant explanation and workings, (23 arks) (c) Suggest Ten qualitative factors which Teddy plcshould consider before arriving at a decision whether to produce the engines internally or source them externally. (15 Marks) IN GB