Question 4

Question 4: 5.5 marks Vector Turbo Pty Ltd manufactures retro socks and gloves for cycling. Socks {per pair] Gloves (per pair) Machine hours required per unit 3 hrs 4 hrs Standard cost per unit: Direct material $3 .50 $4.50 Direct labour 10.00 15 .00 Manufacmring overhead: Variable 3 .00 2.50 Fixed w E Total $21.00 $27.50 Variable manufacturing overhead is allocated on the basis of direct labour hours and xed manufacturing overhead is allocated on the basis of machine hours. The company requires 10,000 pairs of socks and 12,000 pairs of gloves. Management have decided to introduce a new apparel line. The company has only 315,000 machine hours per year that can be utilised for production of socks and gloves. An external organisation has offered to sell Vector socks for $20.00 and gloves for $25.00 per pair. Required: (Consider each question below independently) Show all workings for the below calculations. a. Assume that Vector has decided to manufacture all socks required and purchases gloves only as needed to satisfy requirements. Determine the number of pairs of gloves to be purchased. (2 Marks} b. Assuming fixed costs cannot be avoided if purchasing from the external organisation, calculate the net benefit to the company of manufacturing (rather than purchasing) a pair of socks. Repeat the calculation for a pair of gloves. (2 Marks)c. Vector does not have sufficient machine hours to produce all the socks and gloves required. Which product should Vector produce first with the limited machine time available? Why? (1.5 Marks)