Z Pty Ltd 2011 costs: direct material cost per item $180 direct manufacturing la
ID: 2350549 • Letter: Z
Question
Z Pty Ltd
2011 costs:
direct material cost per item $180
direct manufacturing labor per item $50
variable manufacturing costs per batch $1600
Fixed manufacturing costs that can be avoided if item not made $320,000
fixed manufacturing costs that can't be avoided whether or not item is made $800,000
Expected 2012 Costs:
Direct cost per item $170
direct manufacturing labor per item $45
variable manufacturing costs per batch $1500
Fixed manufacturing costs that can be avoided if item not made $320,000
fixed manufacturing costs that can't be avoided whether or not item is made $800,000
8000 items manufactured in 2011 (40 batches of 200)
10,000 items expected to be manufacture in 2012 (80 batches of 125)
X Pty Ltd and approached offering to supply the items in 2012 at $300 per item on whatever delivery schedule Z Pty Ltd wants.
1) Caculate total expected manufacturing cost per item in 2012
2) On financial basis alone, should Z Pty Ltd choose to purchase items from X Pty Ltd or continue to manufacture them (capacity used to make items will become idle)
3) If Z pty Ltd chooses to buy from X Pty Ltd, they will then thoose to manufacture and sell special items instead.
Estimated incremental future revenues from special items $2,000,000
Estimated incremental cost to make and sell special items $2,150,000
Should the continue to make items, or choose to purchase them from X Pty Ltd?
Explanation / Answer
1) total expected manufacturing cost per item in 2012= =170+45+1500 = $ 1715 2) yes 3) yes , they can obtain profits in longrun
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