Question (2) (25 Marts) ALMA Company has traditionally made a subcomponent of its major product. Annual production of 50,000 subcomponents results in the following costs: Direct Materials $5 Direct Labour $4 Variable Overhead $3 Fixed Overhead $2.4 ALMA has received an offer from an outside supplier who is willing to provide the 50,000 units of the subcomponent each year at a price of $13.6 per unit. ALMA knows that the facilities now being used to manufacture the subcomponent could be rented to another company for $80,000 per year if the subcomponent were purchased from the outside supplier. In addition, $1.40 per unit fixed manufacturing overhead would be eliminated. Otherwise, there would be no effect of this decision on all "other related factors". Required: a. What is the relevant per unit cost for the subcomponent? (5 Marks) b. Do you advice ALMA Co. to purchase the subcomponent from the outside supplier? (8 Marks) That would ho the impact on the company's not onerating income for the year, if the company ALMA knows that the facilities now being used to manufacture the subcomponent could be rented to another company for $80,000 per year if the subcomponent were purchased from the outside supplier. In addition, $1.40 per unit fixed manufacturing overhead would be eliminated. Otherwise, there would be no effect of this decision on all other related factors". Required: a. What is the relevant per unit cost for the subcomponent? (5 Marks) b. Do you advice ALMA Co. to purchase the subcomponent from the outside supplier? (8 Marks) c. What would be the impact on the company's net operating income for the year, if the company decided to purchase the subcomponent from the outside supplier? (7 Marks) d. What "other related factors" are considered to determine whether to make or buy a product? Discuss (5 Marks) Question (21/25 Marks) ALMA Company has traditionally made a subcomponent of its major product. Annual production of 50,000 subcomponents results in the following costs: Direct Materials Direct labour Variable Overhead Fixed Overhead 55 $4 $3 $2.4 ALMA has received an offer from an outside supplier who is willing to provide the 50,000 units of the subcomponent each year at a price of $13.6 per unit. ALMA knows that the facilities now being used to manufacture the subcomponent could be rented to another company for $80,000 per year if the subcomponent were purchased from the outside supplier. In addition, 51.40 per unit fixed manufacturing overhead would be eliminated. Otherwise, there would be no effect of this decision on all other related factors Required a. What is the relevant per unit cost for the subcomponent? (5 Marks) b. Do you advice ALMACo to purchase the subcomponent from the outside supplier? (8 Marks) What would be the impact on the company's net operating income for the year if the company decided to purchase the subcomponent from the outside supplier? (7 Marks) 6. What other related factors are considered to determine whether to make or buy a product? Douss Marks) seen
