Josh Chemic Company Limited (Josh Chemic) manufactures a wide variety of detergents for use in hospitals. The operations manager of Josh Chemic has recently been approached by a new manufacturer based in a newly industrialized country who has offered to produce three of the detergents at their factory. The following cost and price information has been provided. Detergent Aromatic Enzyme Presoak Production (units) 20,000 40,000 80,000 GH¢ GH¢ GH¢ Direct material cost, per unit 6.80 7.00 6.40 Direct labor cost, per unit 7.60 7.80 6.80 Direct expense, per unit 6.40 6.60 6.20 Fixed cost per unit 6.80 7.00 6.40 Selling price each 25.00 30.00 12.00 Imported price 16.75 25.20 12.00 All fixed costs are directly attributable fixed costs Required 1. Calculate the profits Josh Chemic will make by producing each of the detergents in-house. 2. Calculate the profits Josh Chemic will make by purchasing the detergents from the overseas producer. 3. What saving (increased cost) per unit would be made/(incurred) if the detergents were purchased from the overseas producer? 4 Advice Josh Chemic whether the detergents should be produced in-house or outsourced to the overseas producer
Josh Chemic Company Limited (Josh Chemic) manufactures a wide variety of detergents for use in hospitals. The operations manager of Josh Chemic has recently been approached by a new manufacturer based in a newly industrialized country who has offered to produce three
of the detergents at their factory. The following cost and price information has been provided.
|
Detergent |
Aromatic |
Enzyme |
Presoak |
|
Production (units) |
20,000 |
40,000 |
80,000 |
|
|
GH¢ |
GH¢ |
GH¢ |
|
Direct material cost, per unit |
6.80 |
7.00 |
6.40 |
|
Direct labor cost, per unit |
7.60 |
7.80 |
6.80 |
|
Direct expense, per unit |
6.40 |
6.60 |
6.20 |
|
Fixed cost per unit |
6.80 |
7.00 |
6.40 |
|
Selling price each |
25.00 |
30.00 |
12.00 |
|
Imported price |
16.75 |
25.20 |
12.00 |
All fixed costs are directly attributable fixed costs
Required
1. Calculate the profits Josh Chemic will make by producing each of the detergents in-house.
2. Calculate the profits Josh Chemic will make by purchasing the detergents from the overseas producer.
3. What saving (increased cost) per unit would be made/(incurred) if the detergents were purchased from the overseas producer?
4 Advice Josh Chemic whether the detergents should be produced in-house or outsourced to the overseas producer
Formula:
Profit = Selling price - Total cost
Deduction of total cost from selling price derives the profit.
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