You have to prepare the solutions for the following problems. MS Excel should be used preparing solution. Hints and references of relevant lectures are also provided for each question.

Q.1

The company's Accounting Department reports the following costs of producing 16,000 units of the wheels internally each year:

	Per Unit		16,000 Units
Direct Materials	12		192,000.00
Direct Labor	8		128,000.00
Variable overheads	2		32,000.00
Supervisor's Salary	6		96,000.00
Depreciation of Special Equipment	4		64,000.00
Allocated General overhead	10		160,000.00
Total Cost	42		672,000.00

An outside supplier has offered to sell 16,000 wheels a year to Toronto Cycles for a price of $38 each, or a total of $608,000 (= 16,000 wheels $38 each).

Special equipment's used in production was bought 5 years back and do not have any resale value now.

The supervisor is specifically hired to supervise the production of wheels, thus is relevant and avoidable if wheels are bought from outside.

Requirement:

Should the company stop producing the wheels internally and buy them from the outside supplier?

Hints and Reference:

Lecture and reading material of Buy and Make Decision and Utilization of Constrained

Resources. Email's of Friday, dated 16,,2021