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Bus 5110-WK 4-Written Assignment

The document is a case study for a business course assignment that asks students to analyze whether a vacuum manufacturer should make or buy engine components based on cost data. It provides costs for direct materials, direct labor, variable and fixed overhead, and the option to outsource production. Students are asked to perform calculations, articulate their analysis, make a recommendation, and consider additional factors.

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167 views3 pages

Bus 5110-WK 4-Written Assignment

The document is a case study for a business course assignment that asks students to analyze whether a vacuum manufacturer should make or buy engine components based on cost data. It provides costs for direct materials, direct labor, variable and fixed overhead, and the option to outsource production. Students are asked to perform calculations, articulate their analysis, make a recommendation, and consider additional factors.

Uploaded by

david olayiwola
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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COURSE: BUS 5110

WRITTEN ASSIGNMENT-WEEK 4

COURSE INSTRUCTOR: JAMAL BOUBETANA

SCHOOL: UNIVERSITY OF THE PEOPLE, US.

PROGRAMME: MBA /JUNE 2021

QUESTION:

Submit a paper which is 2-3 pages in length (no more than 3-pages), exclusive of the reference
page. Paper should be double spaced in Times New Roman (or its equivalent) font which is no
greater than 12 points in size. The paper should cite at least two sources in APA format.  One
source can be your textbook.

Please describe the circumstances of the following case study and recommend a course of action.
Explain your approach to the problem, perform relevant calculations and analysis, and formulate
a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine
components based on the annual production of 50,000 units.

Description Cost per Month


Direct Materials    $75,000
Direct Labor $100,000
Total $175,000

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is
applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party has
offered to make the engines for $60 per unit. 75% of fixed factory overhead, which represents
executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the
company make or buy the engines?

Superior papers will:

 Perform all calculations correctly.


 Articulate the approach to solving the problem, including which financial information is
relevant and not relevant.
 Correctly conclude on whether the company should make or buy the engines.

Propose other factors that should be considered when making this decision and elaborate on
whether or not those factors do or do not support the decision.

Be sure to use APA formatting in your paper.  

Solution:

Direct Materials = 75,000 X 12 = $900,000

Direct Labour = $100,000 X 12 = $1,200,000

Total = $175,000 X 12 = $2, 100,000

Variable Factory Overhead = $7.50 per unit

Overhead = $7.50 X 50,000 = $375,000

Fixed Factory Overhead = 150% pf Direct Labour Cost per Unit.

Therefore, We have to solve for Direct Labor Cost per Unit.

Total Direct Labour for the year = $1,200,000

This means that $1,200,000 = 50,000 units


Direct labour per Unit will be 1,200,000 / 50,000 = $24

Fixed Factory Overhead = 150% of $24 = $36

Total Annual Fixed Factory Overhaed = $36 X 50,000 = $1,800,000

This means that Unit Costs for direct Materials will be $18

Cost to buy engines from outside/outsourced cost = $60 X 50,000 = $3,000,000

75% Fixed Cost of Annual Fixed Factory Overhead = 75% X 1,800,000

= $1,350,000

Annual Sales Revenue = $50 per Unit X 50,000 Units = $7,500,000

Recommendation:

Making engine components within the company (internally) is the best option as it saves cost a big deal.

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