Relevant cost Qn 15 page no 9

QUESTION FIFTEEN - Marginal analysis - Make or Buy/Contract Decisions TUPO Ltd is a company located at Manzese area; the company is specialized in fabrication of sport bicycles. The estimated costs of producing 6,000 sport bicycles are: Per Unit- TZS Total - TZS Direct Material 10,000 60,000,000 Direct Labor 8,000 48,000,000 Applied Variable Overhead 9,000 54,000,000 Applied Fixed Factory Overhead 12,000 72,000,000 TOTAL 39,000 234,000,000 The bicycles can be purchased from market at a price of TZS 29,000 per unit. If the bicycles are purchased from the external market, 25% of the fixed factory overhead will be saved. Required a) Use accounting number to advise the management of TUPO Ltd as to whether the bicycles should be internally produced the bicycles or buy them from external market. b) Discuss any other eight (8) qualitative characteristics would you consider in your advice to the Management of TUPO (Consider both favouring your advice and not favouring your quantitatively supported decision)