QUESTION 3 [30 MARKS] A. Allgood Company is faced with the following situations in which your expertise is sought: Situation 1: Make or buy The budgeted manufacturing costs of Product X are as follows: Direct materials per unit - $ 24 Direct labour per unit - $ 24 Fixed production costs (predetermined OAR) - $ 20. A supplier has offered to supply the good at a guaranteed price of $60. Should the company buy the product or continue making it? [3 marks] Situation 2: Acceptance of a one-off order The company manufactures one product, with current production being at 80% of the firm's total capacity. Costs and revenue data are as follows: Sales(10,000 units) $200,000 Costs: Variable production costs $150,000 Fixed production costs $30.000 Variable selling costs $5,000 Fixed selling & admin costs $1.000 Total costs $188,000 Profit $14,000 An overseas customer has placed a one-off bulk purchase order of 2,000 units, but the maximum price he is willing to pay is $16 per unit. No other variable selling costs would be incurred if the order is accepted. Should the firm accept the order? [3 marks) Situation 3: Selecting from a number of alternatives The Company also manufactures a product called Astro. The normal output for this product is 200,000 units. The following is a summarized cost statement relating to production of Astro: $ $ 5.00 7.00 Materials Direct Wages Factory overheads: Fixed Variable Administration overhead: Fixed Selling overheads: Fixed Variable 4.50 1.00 5.50 2.00 3.50 3.00 6.50 26.00 The selling price of the product is $36. During the year, the company received 2 special orders, each involving the production of 2,000 units. Option 1 related to the production of a Super Astro. Under this option, variable costs would increase by 25% but selling price cannot exceed $25.00 per unit. Option 2 related to the production of Hyper Astro, under which variable costs would decrease by 25% but the selling price would be $19.00 per unit. Due to normal production commitments, only one of the 2 options can be selected. Required: (a) What would be the profits in normal trading if: (1) The selling price was increased to $40 per unit and output restricted to 160,000 units. [3 marks] (ii) The selling price was decreased to $28 per unit and output increased to 260,000 units. [3 marks]