11 May WHAT QUALITATIVE FACTORS SHOULD BE CONSIDERED IN THE OUTSOURCING DECISION?
Calculate
the number of units that need to be sold annually to break even. 3
b.
How
many units would need to be sold to earn a target annual profit of $120,000?
c.
In
an attempt to achieve better results in the marketplace, management has been
looking at changing the reward systems for making, distribution and sales
personnel. This would result in an increase in variable selling and
administrative costs by $2 per unit, and would reduce fixed selling and
administrative costs by $50000.
(i)
Calculate
the number of units required to break even if management implemented the
changes
(ii)
Would
you suggest management pursues the changes? Explain.
TASK 3: Short-term Decision Making
XYZ Company produces plunge pools. Currently, the company uses
internally manufactured pumps to power water jets. XYZ Company has found that
40 per cent of the pumps have failed within their 12-month warranty period,
causing huge warranty costs. Because of the companys inability to manufacture
high-quality pumps, management is considering buying pumps from a reputable
supplier who will also bear any related warranty costs. XYZ companys unit cost
of manufacturing pumps is $83.75 per unit, including $17.25 of allocated fixed
overhead (primarily depreciation of equipment). Also, the company has spent an
average of $22 (labor and parts) repairing each pump returned. XYZ Company can
purchase each pump for $92.50. During 2013, XYZ Company plans to sell 12,800
plunge pools (each pool requires one pump).
XYZ companys unit cost of manufacturing pumps is $83.75 per unit,
including $17.25 of allocated fixed overhead (primarily depreciation of
equipment). Also, the company has spent an average of $22 (labor and parts)
repairing each pump returned. XYZ Company can purchase each pump for $92.50.
During 2013, XYZ Company plans to sell 12,800 plunge pools (each pool requires
one pump).
Required
a. Determine whether XYZ Company should make or buy the
pumps, and the amount of cost savings arising from the best alternative. [8
marks]
b. What qualitative factors should be considered in the
outsourcing decision? [7 marks]
e.
Fixed
costs are always irrelevant in decision making. Discuss. [5 marks]
TASK 4:
Budgetary Control Systems
Madihaa Company Pte Ltd intends to start business on the first of
January. Production plans for the first four months are as follows:
January
20,000 units
February
50,000 units
March
70,000 units
April
70,000 units
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