Bonmarche Ltd produces trophies and other memorabilia. Its financial director is always on the lookout for new opportunities. Bonmarche Ltd incurs the following costs: Direct material R 100 per unit Direct labour R 50 per unit Variable overheads R20 per unit Manufacturing fixed cost R 500 000 in total Company fixed cost R 600 000 in total Additional notes: • A new opportunity has come up, whereby Bonmarche Ltd can buy 50% of its production units from an independent supplier at R180 per unit. • Bonmarche Ltd produces and sells 50 000 units in a year. • It takes 0.5 hours to make a unit. • If the new arrangement is entered into, manufacturing fixed costs will decrease by 20%. Advise the financial director of Bonmache Ltd whether the new arrangement should be entered into, by applying the method of relevant costing.
Bonmarche Ltd
Bonmarche Ltd produces trophies and other memorabilia. Its financial director is always on the lookout for new opportunities.
Bonmarche Ltd incurs the following costs:
Direct material R 100 per unit
Direct labour R 50 per unit
Variable
Company fixed cost R 600 000 in total
Additional notes:
• A new opportunity has come up, whereby Bonmarche Ltd can buy 50% of its production units from an independent supplier at R180 per unit.
• Bonmarche Ltd produces and sells 50 000 units in a year.
• It takes 0.5 hours to make a unit.
• If the new arrangement is entered into, manufacturing fixed costs will decrease by 20%.
Advise the financial director of Bonmache Ltd whether the new arrangement should be entered into, by applying the method of relevant costing.
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