Management Accounting

Formal Exams SP51, 2021 BX3172 Management Accounting for Non-Accountants Question 4 (15 marks) Toyo Electronics needs 10,000 units of a certain part that will be used in the production of its karaoke machines. If Toyo Electronics buys the part from Sim Corporation instead of making it themselves, Toyo could not use the present facilities for another manufacturing activity. Seventy per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented: Cost of making the part: Direct materials $5.00 Direct labour 25.00 Variable overhead 12.00 Fixed overhead applied 15.00 $57.00 Cost of buying the part: $45.00 Toyo Electronics operates its manufacturing facility in an area with high unemployment and it is unlikely that displaced employees will easily find other employment. Required: 1. In deciding whether to make or buy the part, what are Toyo's total relevant costs to make the part? What are the total relevant costs of buying the part? Explain your calculations. (6 marks) 2. Which alternative (make or buy) is more desirable to Toyo and by what financial amount? Explain. (4 marks) 3. Discuss any other factors that Toyo should consider, and which may influence its decision. Be specific. (5 marks) END OF EXAMINATION