Illustration

Payal Ltd., manufactures a picnic table which has three components A, B and C, one of each being required for each table. The company is working to its full machine capacity of 28,000 hours per period and the machinery used is capable of making all the components.

Data relating to current production are:

Over the next budget period the machine capacity cannot be increased although the assembly capacity can be increased as required. The budget for the next period is being prepared. Because sales are buoyant the purchase of one of the components is being considered and the following quotation has been received:

The company has decided that only one component will be bought outside in any one period. The sales manager thinks that he could sell at least 50% more tables than at present and probably 75% more provided that the production capacity was available.

You are required to:

1. Give a statement showing current profitability.

2. Recommend which component should be bought outside if production is increased by 50% and how many components should be bought.

3. Recommend which component should be bought outside if production is increased by 75% and how many components should be bought.

  Solution

1. Current Production

1. If production is increased by 50%, then 1,000 × 150% = 1,500

But the total available hours are only 28,000 hrs.

The lower ranked product B should be purchased. Manufacture of A & C will require 9,000 + 18,000 = 27,000 hrs.With Balance 1000 hrs, 100 units of B can be manufactured and 1,400 of B can be purchased.

Resultant profit would be:

1. If production is increased by 75%, then 1,000 × 175% = 1,750

Machine hrs required A: 10,500 B: 17,500 C: 21,000.

When production is increased to 1,750 hrs.and if the lower ranked product B is purchased A & C would require 10,500 + 21,000 = 31,500 hrs. But only 28,000 hrs are available. The company has taken a decision to purchase one component only. Hence C should be purchased. Now A & B would require 10,500 + 17,500 = 28,000 hrs.which are at hand.

The resultant profit would be:

Email based Accounting assignment help - homework help at Expertsmind

Are you searching Accounting expert for help with Example of Make or Buy Decisions questions?  Example of Make or Buy Decisions topic is not easier to learn without external help?  We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Example of Make or Buy Decisions related problems. We provide step by step Example of Make or Buy Decisions question's answers with 100% plagiarism free content. We prepare quality content and notes for Example of Make or Buy Decisions topic under  Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.

Why Expertsmind for assignment help

1. Higher degree holder and experienced experts network
2. Punctuality and responsibility of work
3. Quality solution with 100% plagiarism free answers
4. Time on Delivery
5. Privacy of information and details
6. Excellence in solving Accounting questions in excels and word format.
7. Best tutoring assistance 24x7 hours