Stainless Refrigerator Company $($SRC$)$ purchases Ice Makers and installs them in their

products. The ice makers cost $$138$ per case of $12$ ice makers. The supplier recently gave

advance notice that the price per ice maker will be increased by $50\%$ immediately. SRC

has idle equipment which can be used to produce similar ice makers after some minor

adjustments are made to the machinery. These adjustments will not incur any additional

cost$.$ The Production supervisor has prepared the following estimated cost under the

assumption that the Company manufactures the ice makers.

Direct material cost per case of $12$$$100\mathrm{.}80$

Direct Labour $10$ minutes per unit at a rate of $$18\mathrm{.}00$ per hour

Variable Overhead $$4\mathrm{.}60$ per unit

Additional Information

Fixed Production Overhead under either alternative $$32,420$

Other operating Cost $$234,000$

Production is expected to be $75,000$ ice makers per year

Assume that any idle equipment cannot be used for any other purpose

Required

Determine whether the Ice Makers should be manufactured internally or purchased

externally from the supplier at the increased price. $($Show all computations$)$

Part B $(13$ marks$)$

Brent Oil has begun offshore drilling in waters off the north of Guyana. As a new venture

they are using estimates derived from research studies. Crude oil pumped from the wells

will generate three products from a joint processing operation. Joint processing cost up to

split$-$off total $$8,500,000$ per quarter. Estimated information for the most recent quarter is

presented below:

The additional processing results in a $5\%$ normal loss in volume.

Required

Allocate the joint cost using:

a$)$ the Sales value at split off method

b$)$ the net realizable method.

Which products should be processed further?