Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / QUESTION 9 Super Impact Protection Ltd produce shock absorbing phone covers that protects smartphones from extreme shocks the company produced 63
QUESTION 9 Super Impact Protection Ltd produce shock absorbing phone covers that protects smartphones from extreme shocks the company produced 63.000 phone in the month of November 2019. The costs are listed below: Direct Materials 85,000 Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 132,500 65,000 92,000 374,500 Ultra-protect Company has offered to supply the phone covers to Super Impact Protection Company for $5 per unit. The chief accountant of Super impact Protection is considering the potential benefit of accepting this offer. Upon investigating its overhead costs, the chief accountant found that if Super Impact Protection buys the phone covers from Ultra-protect Company, it would eliminate $20,000 of total fixed costs, and could use the released production capacity to generate an additional income of $47,000 from producing a different product Required: From a financial perspective, should the phone covers be outsourced? Show full calculations. (10 marks) re Click Save and Submit to save and submit. Click Save All Answers to save all answers. MacBook Air 888 BO FS FO % 5 6 R T
ANSWER:
No. of phone cases (Units) = 63,000
(1)Total Cost to Super Impact = (Total Average Fixed Cost + Total Average Variable cost)* No. of Units
Total Average Fixed Cost = (Direct Materials + Fixed Manufacturing Overhead cost)/ No. of Units
= 85,000 + 92,000 = 1,77,000/ 63,000
= 2.81
Total Average Variable Cost = (Direct Labour + Variable Manufacturing overhead)/ No. of units
= (1,32,500 + 65,000)/ 63,000
= 1,97,500/63,000
= 3.13
So,
Total Cost to Super Impact = (2.81+3.13)*63,000
= $3,74,220
(2) Total Cost to ultra protect company = No. of Units * Cost per unit
= 63,000 * 5
= $3,15,000
Hence, Profit if the company outsources this to ultra protect company = 3,74,220 - 3,15,000
= $ 59,220
which could be used to manufacture other materials into the production unit of Super Impact.
Hence, this clarifies that it is beneficial to outsource the phone cases production to ultra protect company.
