You have just joined the accounting team at Aladdin Industries Limited and your supervisor has come to you looking for assistance with 2 separate decisions.Consider each situation independently.

Decision 1

Aladdin Industries Limited currently manfactures part MK33 that is used in the production of their product. The company has been approached by an outside supplier who has offered to supply the part at a cost of $12 per part. You have gathered the following information regarding the current cost to make the part:

	Per unit	25,000 units per year
Direct materials	$ 3.00	$ 75,000
Direct labour	4.00	100,000
Variable overhead	2.50	62,500
Fixed manufacturing, traceable	1.80	45,000
Fixed manufacturing, allocated	3.00	75,000
Total cost	$ 14.30	$ 357,500

Included in the fixed manufacturing, traceable costs is $20,000 of depreciation on equipment that has no resale value.

Your supervisor, Genie, wants to know whether they should accept the outside supplier's offer or continue to make the parts themselves. Would the answer be different if they could use the freed up capacity to produce a new product that would generate a contribution margin $50,000.

Decision 2

Due to a labour shortage, the company is not able to meet all the demand for the 3 products they produce in one of their divisions. Information on the 3 products is found below:

Product A Product B Product C

Selling price per unit	200.00	300.00	255.00
Direct materials per unit	25.00	80.00	20.00
Direct labour per unit	12.00	45.00	30.00
Variable overhead per unit	23.00	25.00	10.00
Fixed over head per unit	10.00	14.00	10.00

The direct labour rate is $15.00 per hour & only 12,000 hours are available next month

Genie would like to know the contribution margin per hour for each of the three products as well as which product they should fill the orders for first, second & third.

Required:

Make a report for Genie with your recommendations on both of the above decisions to be made. Make sure to include all your calculations to support your recommendations.