Ooredoo 9:36 PM mybb.qu.edu.qa v) An assembling company of sport bikes in Qatar
ID: 2559527 • Letter: O
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Ooredoo 9:36 PM mybb.qu.edu.qa v) An assembling company of sport bikes in Qatar called Qatar bicycles Company has an issue with its production of sport bikes parts; currently, the company produce 40000 parts per year Mr. Tamim Al-Mohannadi is the owner of the company. He s that "the current equipment for producing the parts has worn out". He asks his employers that "we need to make a decision quickly to continue our assembling production". Mr Mohammed Al-Hajri is the managerial accountant of the company. He lends his hand to help on the issue, he argued "Mr. Al-Mohannadi, we have two options to decide whether we buy a new equipment and continue our production of the parts internally, or we purchase the parts from a foreign supplier". Mr. Al-Mohannadi asks for further clarifications with figures, Mr Al-Hajri summaries the two alternatives as follows: 1- Buy a new equipment costs S80000 and continue the production internally 2- Do not buy the new equipment (stop the production) and purchase the parts from a foreign supplier for $11 per part. Mr. Al-Hajri also provided further information to the company's owner about the costs per part: irect Labor Overbcad Costs (Variable) Overhead Costs (Fixed) Mr. Al-Hajri provided further information as follows: The new equipment would be more efficient to produce 100000 parts instead of 40000 parts per year. It also reduces direct labor costs and variable overhead costs by 35%. However, Mr. Al- Mohannadi argued that the Supervision cost and direct materials cost per part as well as the total general fixed costs would not be affected by this decision (alternative 1). Required: a. Mr. Al-Mohannadi is unsure what the company should do. He asks for an analysis (on an excel sheet) for each of the two alternatives per part and in total costs; using the current level of production (40000 parts). Which alternatives do you recommend to the owner (Mr. Al-Mohannadi)? Why? (3 Marks) b. Mr. Al-Mohannadi is planning to increase the production to (i) 70000 parts and (ii) 100000 parts per year. Using an excelExplanation / Answer
Decision- The Option to buy an equipment and make parts internally is better than buying the parts from outside as the cost under make option is cheaper as compare to buy option.
Decision- For both the level of activities the make option is better as compared to buy option as cost is cheaper under make option .
Answer to part C
Other factors which are to be considered are volume requirements, govt policies, technological changes, reliability of suppliers, design secrecy, supplier quotation, age of industry.
Answer to Part A Particulars Per Unit Cost 40000 Units Cost Make Buy Make Buy Cost of Purchasing $11 440,000.00 Cost of Making:- Direct Material $4.75 190,000.00 Direct Labor (4x 65%) 2.60 104,000.00 Variable Overhead (.60x 65%) 0.39 15,600.00 Total Cost $7.74 $11 309,600.00 440,000.00Related Questions
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