UK Cost accounting


Joined
Apr 22, 2020
Messages
2
Reaction score
0
Country
Mauritius
Diana has recently followed a course in furniture making and has decided to set up her own workshop from which she will be producing wooden chairs. She starts renting a small workshop at an annual rental cost of $6,000, business rates amount to $1,000 per annum, while workshop heating and lighting will cost $800 annually.
The direct cost information for one wooden chair is given below:
$
Direct materials: Wood 18
Glue 0.6
Screws 1
Sandpaper 0.4
Direct labour 25
Diana decides that her workshop is capable of producing a normal output of 1000 chairs annually.


Diana is expanding fast and has more orders than she can currently fulfill with only 2 employees. She now has annual orders for 1500 chairs at a price of $85. She is considering whether to take a third employee. This decision will not increase her fixed costs as she has spare capacity to accommodate another two workers. Best Woods, another furniture-maker, has offered to make the additional 500 chairs for Diana and sell them at a cost of $49 each. Diana is quite happy with this proposal as she knows her total product cost per unit is higher than the proposed price.

Advise Diana whether she should employ the additional worker and do the annual production herself or buy them from Best Woods. Your answer should be supported by both financial and non-financial reasons.
 
Ad

Advertisements

Ian

Administrator
Joined
Jun 28, 2007
Messages
70
Reaction score
5
Country
United Kingdom
Please note that if you are looking for assistance with an exam-style question, you must attempt the question yourself before asking for help. You can then state the answer you have so far and explain which aspect you need help with. Anyone posting exam-style questions expecting the answer to be given to them will have their posts removed.

Please attempt this question yourself and let us know where you are stuck. We don't just provide answers on demand for exam questions.
 
Joined
Apr 22, 2020
Messages
2
Reaction score
0
Country
Mauritius
Am stuck on the cost of labour to be taken into cosideration while employing the 3rd worker...what is the new cost of labour that i should use to calculate new vc?
 
Ad

Advertisements

Werner Reisacher

VIP Member
Joined
Jun 30, 2017
Messages
203
Reaction score
20
Country
Switzerland
How much money would Diana have to pay if she bought the chairs she cannot produce without adding the 3rd employee to Best Wood?
What are the total variable costs including wood, glue, (see the list above) that she would have to pay for each additional chair built in her workshop?
That should point you in the right direction.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top