Question
Question 1(10 mins, 20 marks) The Hyatt Company is trying to decide whether it should continue to make its sub-assemblies or if it should purchase
Question 1(10 mins, 20 marks)
The Hyatt Company is trying to decide whether it should continue to make its sub-assemblies or if it should purchase them from an outside supplier for $9.00 each.Currently, 40,000 units per year are manufactured internally, with the following costs:
Direct Materials | $ 3.00 |
DirectLabour | $ 4.20 |
Variable Overhead | $ 0.60 |
Fixed Overhead* | $ 3.70 |
Total Manufacturing Cost per Unit | $ 11.50 |
* The fixed overhead cost consists of $0.80 for supervision**, $0.90 for taxes and $2.00 for rent.
** The supervisor position would be eliminated if the sub-assemblies were sourced outside.
Required:
- Prepare an analysis of the two alternatives and make a recommendation. 14 Marks
Assume that Hyatt could use the facilities to expand production for another product that would yield an additional contribution margin of $80,000 annually.What is the maximum
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