Written Assignment Unit 4

docx

School

Colorado State University, Fort Collins *

*We aren’t endorsed by this school

Course

5110

Subject

Business

Date

May 31, 2024

Type

docx

Pages

Uploaded by manis076

1 Written Assignment Unit 4 MBA Program, University of People BUS 5110- Managerial Accounting Dr. Geetika Arora May 8, 2024.

2 Introduction Differential analysis is a powerful tool in managerial accounting that is used to compare the costs and benefits of different alternatives in making an informed decision (Lynch, 2014). In this case, the vacuum company is deciding whether to outsource the engine components manufacturing or continue in-house production. To reach a decision, various aspects of differential analysis come into play such as identifying the options, potential solutions, determining relevant costs, perform differential analysis and making the decision (Lynch, 2014). Calculations As per given scenario, we can calculate cost per year as below: Description Cost per month Cost per year Direct Material $75,000 $75,000 x 12 = $900,000 Direct Labor $100,000 $100,000 x 12 = $1,200,000 Total $175000 $2,100,000  Annual Variable Factory overhead = $7.50 x 50,000 = $375,000  Fixed factory overhead for in-house manufacturing: $36,000. 150% of Direct labor cost per unit = 1.5 x $24,000 = $36,000 o Direct labor cost per unit = Total direct labor cost / total units = $1,200,000 / 50,000 = $24,000  Fixed Factory overhead for buying from third party: 75% of fixed factory overhear = 0.75 x $36,000 = $27,000.  Annual cost for buying the component = $60 x 50,000 = $3,000,000.

3 Total production cost per year for manufacturing 50,000 units: = Direct Material + Direct Labor + Annual Variable Factory overhead + Fixed factory overhead for in-house manufacturing (Heisinger & Hoyle, n.d.) = $900,000 + $1,200,000 + $375,000 +$36,000 = $2,511,000 Total production cost per year for buying 50,000 units: = Annual cost for buying the component + Fixed Factory overhead for buying (Heisinger & Hoyle, n.d.) = $3,000,000 + $27,000 = $3,027,000 All the above financial information is relevant to the analysis and decision-making process for the vacuum company. Without this financial information, an informed decision cannot be made on whether is if beneficial for the vacuum company to manufacture the engine component themselves or purchase it from a third party. However, the revenue generated from sales of vacuum is not relevant for the purpose of this assignment as the sales revenue will remain the same because the sale price of vacuum is dictated as $150 per vacuum, and production unit is same, 50,000 units. (Revenue from sales = $150 x 50,000 = $7,500,000) Analysis The total production cost per year for 50,000 units for manufacturing in house versus buying from a third party shows that the company should strongly consider manufacturing the engine component in-house. As seen in the above calculations, the cost of manufacturing in-house is $2,511,000 which is incredibly low compared to the cost of purchasing the engine component from a third party which is $ 3,027,000.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

4 Recommendations Based on the above analysis, I recommend the company manufacture the components in-house. This would be beneficial for the company as it can save $516,000 in the process. Additional Factors to Consider  Quality Control (Heisinger & Hoyle, n.d.) : Manufacturing in-house, the company will have better oversight in quality control and product standards.  Lead Time (Heisinger & Hoyle, n.d.) : Customer demand can be met efficiently as there is no outsourcing of the component manufacturing offering lead time on product delivery.  Risk Management (Heisinger & Hoyle, n.d.) : The risks associated will be lowered, such as potential supply chain disruptions or quality issues since the company is manufacturing the component themselves. Conclusion The differential analysis shows significant cost savings by in-house manufacturing; hence the vacuum company should opt to manufacture the engines themselves. This will ensure careful consideration of quality control, lead time, and risk management. Ultimately, the company would succeed in overall production cost saving and customer satisfaction by manufacturing the engine component for the vacuum in-house.

5 References Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers . https://2012books.lardbucket.org/books/accounting-for-managers/index.html Lynch, C. (2014, June 23). Differential Analysis - Concepts [Video]. YouTube.

Related Documents

Week 2 - Discussion 1.docx

Week 2 - Discussion 2.pptx

Module - 5 - Machine Learning-Gurpinder Brar.docx

STCO 546 DB5.docx

Week 3 - Discussion 2.docx

F1F0C742-52F1-4918-9CDE-1E0F826F01EB.jpeg

Assignment 2-BUS 100.docx

Abraham_Claudia_Organizational_ Strategy_and_Analysis.docx

Módulo 1_Foro de Discusión 2_Ecuación básica_ACCO111 - Google Docs.pdf

DQ's.docx

1. Examen Diplomado Actos Preparatorios.docx

Ethical Lens Inventory and Himachal Assessment.docx

Recommended textbooks for you

Management, Loose-Leaf Version

Management

ISBN:9781305969308

Author:Richard L. Daft

Publisher:South-Western College Pub

Understanding Management (MindTap Course List)

Management

ISBN:9781305502215

Author:Richard L. Daft, Dorothy Marcic

Publisher:Cengage Learning

Foundations of Business (MindTap Course List)

Marketing

ISBN:9781337386920

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:Cengage Learning

Foundations of Business - Standalone book (MindTa...

Marketing

ISBN:9781285193946

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:Cengage Learning

Principles of Management

Management

ISBN:9780998625768

Author:OpenStax

Publisher:OpenStax College

SEE MORE TEXTBOOKS

Recommended textbooks for you

Management, Loose-Leaf Version
Management
ISBN:9781305969308
Author:Richard L. Daft
Publisher:South-Western College Pub
Understanding Management (MindTap Course List)
Management
ISBN:9781305502215
Author:Richard L. Daft, Dorothy Marcic
Publisher:Cengage Learning
Foundations of Business (MindTap Course List)
Marketing
ISBN:9781337386920
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:Cengage Learning
Foundations of Business - Standalone book (MindTa...
Marketing
ISBN:9781285193946
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:Cengage Learning
Principles of Management
Management
ISBN:9780998625768
Author:OpenStax
Publisher:OpenStax College