MANAGEMENT ACCOUNTING EXAM JUNE 2020 EXERCISE 1 Taylor SpA produces in specialized department a component (annual volume: 1000 units) whose industrial unitary cost (selling costs) is the following: Raw materials Direct labour Depreciation (machinery) Training for usage of machinery Machinery power (excluded fixed fee) Provisions (selling costs) Industrial general overhead costs 30 50 22 18 20 5 50 An external supplier offers the same component at a unitary price equal to 95. Knowing that: Machineries are neither transferable to third parties nor they can e re-used Machineries used have been completely paid to the machinery-supplier yet, remaining 5000 per year for the next 3 years Machineries used have a counter which measure their variable machinery power Direct labour is made by 2 workers: W1 in not employable in another department because he will retire; W2 becomes a part-time worker (70%) and he will be shared with another department for 40% of his par time. The remaining time in the current department will be used to perform quality control, to reinforce this activity. Industrial general costs would not decrease but the allocation basis (direct work) generates a lower unitary cost of 48. Determine whether Taylor spa has economic convenience or not in accepting the supplier offer.