2. Yoklic Ltd currently manufactures a subassembly for its main product. The costs per unit are...

2. Yoklic Ltd currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials	$4
Direct labour	$30
Variable overhead	$15
Fixed overhead	$25
Total	$74

Regina Ltd has contacted Yoklic with an offer to sell it 5000 subassemblies for $55.00 each.

Required

(a) Should Yoklic make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives.

(b) The accountant decided to investigate the fixed costs to see whether any incremental changes would occur if the subassembly were no longer manufactured. The accountant believes that Yoklic will eliminate $50 000 of fixed overhead if it accepts the proposal. Does this new information change the decision? Show your calculations.

(c) What qualitative factors are important for accountants and managers to consider for Yoklic’s make or buy decision?

Expert Solution

Solution a:

Differential Analysis- Troy Engines Ltd - Making subassemblies (alt 1) or Buying Subassemblies (Alt2)
Particulars	Making Subassembly (Alt 1)	Buying Subassembly (Alt 2)	Financial advantage (Disadvantage) of buying (Alternative 2)
Costs:
Purchase Price (5000*$55)	$0.00	$275,000.00	-$275,000.00
Direct material	$20,000.00	$0.00	$20,000.00
Direct Labor	$150,000.00	$0.00	$150,000.00
Variable overhead	$75,000.00	$0.00	$75,000.00

Total Cost	$245,000.00	$275,000.00	-$30,000.00

solution b:

Differential Analysis- Troy Engines Ltd - Making subassemblies (alt 1) or Buying Subassemblies (Alt2)
Particulars	Making Subassembly (Alt 1)	Buying Subassembly (Alt 2)	Financial advantage (Disadvantage) of buying (Alternative 2)
Costs:
Purchase Price (5000*$55)	$0.00	$275,000.00	-$275,000.00
Direct material	$20,000.00	$0.00	$20,000.00
Direct Labor	$150,000.00	$0.00	$150,000.00
Variable overhead	$75,000.00	$0.00	$75,000.00
Avoidable Fixed Overhead	$50,000.00	$0.00	$50,000.00

Total Cost	$295,000.00	$275,000.00	$20,000.00

Solution c:

Qualitative factors to be considered:

1.Credit terms provided by supplier

2. Ability to deliver requisite quantity

3. Quality of product in comparison with in house product.

ekkarill92 answered 2 years ago

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