Homework SourseR140 56 MANCOSA BCOM FINANCIAL MANAGEMENT YEAR 1 52 MAKE BU
R1.40 56 MANCOSA: BCOM FINANCIAL MANAGEMENT YEAR 1 5.2. MAKE / BUY BRITE LIGHTS manufactures different types of globes t a has offered Brite Lights 12 000 units of the fluorescent globe that it manufactures a price of R27 per unit Brite Lights manufactures the same product at a cost of R30 per unit. REQUIRED Use the information provided below to determine whether Brite Lights shou ld take the offer or to continue to manufacture its own. INFORMATION: Unit cost R 13.00 R 7.50 R 2.50 R 4.00 R 3.00 Cost of manufacturing 12 000 units Total cost Direct Materials cost Direct Labour cost Variable manufacturing cost R 156 000 R 90 000 R 30 000 R 48 000 R 36 000 Fixed Manufacturing overheads Share of Non-manufacturing overheads R 360 000 R 30.00 Additional information: f Bright Lights buys the globes from Halogen, the fixed manufacturing overheads costs will be reduced to 12 000 per year. All other costs will remain the same.
Solution
the following is the make or buy analysis:
decision: it is better to make the globes, since the relevant cost for making is R26, the relavant cost for buying is R27, which is R1 more than making option.
| make | buy | incremental cost | |
| purchase price | nil | R27 | R27 |
| direct material | 13 | nil | (13) |
| direct labour | 7.50 | nil | (7.50) |
| variable manufacturing cost | 2.50 | nil | (2.50) |
| fixed manufacturing saving(only 48,000-12,000 =>36,000) is relevant =>36,000 / 12,000 units =>R3 | 3.00 | nil | (3.00) |
| share or non manufacturing overhead (not relevant) | nil | nil | nil |
| total cost | R26 | R27 | R1 |
