QUESTION 3

Amani Company Ltd is a private company incorporated in Namibia. The company manufacture Amani Tricycles that are gradually becoming a major means of inner city transportation in the most Angolan Communities. Demand for these tricycles iscurrently on high the company cost accountant has provided the following per unit cost information relating to the production of Amani tricycle internally

Direct Material N$ 6,000

Direct labour N$ 4,000

Variable overhead N$1,000

Supervisors salaries N$3,000

Depreciation of specialized equipment N$ 1000

Allocated general overhead N$ 5000

N$ 20,000

An external supplier has offered to supply to the company Amantricycle at a price of N$ 18,000per Unit

Aman Ltd has two supervisors. The first supervisor supervise the entire operations of the company while the second supervisor has been specifically engage to ensure that each Aman produced internally meets the standards requirement set out by Namibia Transport authority. The first supervisor is permanently employed and thus receive a fixed salary of N$ 2,000while the second supervisor is paid N$ 1,000per unit of internally produced Aman supervised

The specialized equipment is used fir the designing of the tires of Aman tricycle. If the company decides to stop producing the Aman in the house it can sell the specialized equipment at a price of N$ 4,000

Required:

a) As a management Accountant advice the company on whether to continue to manufacture the tricycle in the house or buy from the next external supplier

b) What are the qualitative factors the company should consider in arriving to the decision to make or buy?