PROBLEM 7 (MAKE OR BUY)A company at present has been buying a component called X', used in its finished product. Purchasing cost ofcomponent X is Rs. 10 per unit. The company has a normal capacity of 40,000 machine hours, and the budgeted fixed costfor the period is Rs. 1,60,000. The sales price of finished product is Rs. 100 per unit. The detailed manufacturing cost of oneunit of finished product at normal capacity is as under:Direct Material (Including Component x)Direct Labour (2 hrs. @ Rs. 8)Rs. 50.00Rs. 16.00Rs. 10.00Rs. 76.00Manufacturing Overhead Cost (1 Machine hr. @ Rs. 10)TotalDirect material cost of the company includes cost of four units of component X used in the finished product. Thecompany has been considering to manufacture its own component 'X'.The product designing department has prepared the following estimation of cost of producing one unit of component 'X'.Direct MaterialRs.3.00Direct Labour 0.25 DLH @ Rs. 8Manufacturing Overhead 0.25 Machine Hours @ Rs. 10TotalRs.2.00Rs.2.50Rs.7.50The company has been able to utilize only 80% of its capacity in the past and it does not expect a change in thesituation in future.Required: Differential cost analysis to see whether the company should make its own component X'or not if company suppose to increased its capacity to produced X.[Ans: Make save Rs. 2,88,000]

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Answered: A company at pre omponent X is Rs. 10 r…

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A company at pre omponent X is Rs. 10 r the period is Rs. 1,6 hit of finished product

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

Problem 8E: Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its...

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