BA2–Fundamentals of Management Accounting Question Tutorial
Question No. 1
A company makes and sells a range of products. The standard details per unit for one of these products, product X, are as follows.
|$ per unit|
|Variable material cost||40|
|Variable labour cost||60|
|Absorbed Fixed production ovewrhead||45|
To meet sales demand, the company must obtain 2,000 units of product X next month. There is sufficient labour capacity to produce 1,500 of these units in-house during normal time. However, any production above this level would require overtime working which would be paid at a premium of 50%.
The company can buy as many units of product X as it wishes next month from an external supplier at a price of $120 per unit.
What is the total financial benefit to the company of purchasing the appropriate number of units from the external supplier rather than producing them in-house?
Choose the correct option from the given list.
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