Reference no: EM132833300
Problem - Roseville Limited makes four separate components, which are used in the assembly of its products. There is a limit on capacity of 44,000 direct labour hours in the next period for the manufacture of components, which will not be sufficient to meet the anticipated demand.
Therefore it will be necessary to buy in some components from an outside supplier to make up any shortfall. The company has the following requirements for the four components in the next period:
|
Component
|
Alpha
|
Beta
|
Charlie
|
Delta
|
|
Requirements (unit)
|
2,000
|
5,000
|
6,000
|
3,000
|
|
Direct material required per @ RM5.00 per kg
|
8kg
|
10kg
|
4kg
|
8kg
|
|
Direct labour hours required per unit
|
3
|
4
|
3
|
4
|
|
Machine hours required per unit
|
4
|
6
|
4
|
2
|
|
Direct labour rates per hour (RM)
|
16.00
|
14.00
|
12.00
|
12.00
|
Additional information relates to the next period is as follows:
Variable production overheads are absorbed on direct labour hours at RM4.00/hour.
Fixed production overheads are absorbed on direct labour hours at RM8.00/hour.
A sub-contractor has offered to supply components for the following unit prices:
|
Component
|
Alpha
|
Beta
|
Charlie
|
Delta
|
|
Buying price (RM)
|
121.00
|
166.00
|
98.00
|
136.00
|
Required - For the next period:
a. Calculate the shortfall in capacity.
b. Advise the management of Roseville Limited on the production schedule, clearly indicating which components should be manufactured or purchased to maximize profit.
c. Identify three (3) factors that the company ought to take into consideration when buying in components.