80.2K

Verified Solution

Link Copied!

The Allied Company makes wheelchairs. Allied Company's costs to produce the locking mechanism for the 3,000 wheelchairs they produce, annually, are: An outside supplier has offered to sell Allied Company the reclining mechanism for \\( 9.00 \\) per chair. If the mechanisms are purchased from the outside supplier, \\( 2,000 \\) of annual fixed overhead could be avoided. The space the manufacture takes up will then be leased to an outside business at a rent of \\( 3,000 \\) per annum. Required a. Considering cost criteria, only, advise whether the company should continue to manufacture or whether it should purchase the mechanisms. (10 marks) b. Briefly describe other factors companies should consider before making the decision to buy-in rather than manufacture. (5 marks) Part B Explain, giving examples, the following terms i. Relevant costs ii. Sunk costs iii. Opportunity costs iv. Incremental costs (15 marks) Part C A company manufactures two products, the A and B. Both products utilise the same material and require skilled labour. Materials and skilled labour are the only variable costs. Product details are as follows: Materials cost \\( 6 \\) per kg. Skilled labour costs \\( 10 \\) per hour. For the month of July 2021 maximum demand is for 2,000 units of A and 1,500 units of B. In July 2021 there is a restriction on the availability of both material and skilled labour. There are \\( 9,000 \\mathrm{kgs} \\). of Material available and 5,000 hours of skilled labour. Fixed costs have been identified as \\( 10,000 \\) per month. Required: Calculate the optimal production plan for July 2021, and the profit made using that production plan. 20 marks)

Answer & Explanation Solved by verified expert

See Answer