lOMoARcPSD|5252336

BUS 5110- Managerial Accounting- Written Assignment Unit

4#7
managerial accounting (University of the People)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)
 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

Make or Buy
Written Assignment Unit 4
Managerial Accounting
Term 4 2020
BUS 5110
University of the People
May 2020

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)

 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

Written Assignment

Submit a paper which is 2-3 pages in length (no more than 3-pages), exclusive of the

reference page. Paper should be double spaced in Times New Roman (or its equivalent) font

which is no greater than 12 points in size. The paper should cite at least two sources in APA

format. One source can be your textbook.

Please describe the circumstances of the following case study and recommend a course of

action. Explain your approach to the problem, perform relevant calculations and analysis, and

formulate a recommendation. Ensure your work and recommendation are thoroughly

supported.

Case Study:

A vacuum manufacturer has prepared the following cost data for manufacturing one of its

engine components based on the annual production of 50,000 units.

Description Cost per

Month

Direct Materials $75,000

Direct Labor $100,000

Total $175,000

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is

applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party

has offered to make the engines for $60 per unit. 75% of fixed factory overhead, which

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)

 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

represents executive salaries, rent, depreciation, and taxes, continue regardless of the

decision. Should the company make or buy the engines?

Superior papers will:

 Perform all calculations correctly.

 Articulate the approach to solving the problem, including which financial information

is relevant and not relevant.

 Correctly conclude on whether the company should make or buy the engines.

 Propose other factors that should be considered when making this decision and

elaborate on whether or not those factors do or do not support the decision.

Be sure to use APA formatting in your paper. Purdue University’s Online Writing LAB

(OWL) is a free website that provides excellent information and resources for understanding

and using the APA format and style. The OWL website can be accessed here:

http://owl.english.purdue.edu/owl/resource/560/01/

This assignment will be assessed using the BUS 5110 Unit 4 Written Assignment rubric

Introduction

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)

 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

“A company may face stiff competition from its competitors and face the decision of

buying some parts of their production process rather than building the parts themselves. This

decision commonly known as make or buy decision involves performing a differential

analysis. Based on those calculations, managers may be able decide whether to make a given

product or buy the product instead of manufacturing the product.” (Osiemo, 2017)

In this assignment, I would judge whether the vacuum manufacturer should produce

the engine components internally or buy them from the third party by utilizing differential

analysis.

Analysis

In order to execute differential analysis to consider whether the company should buy

the engine components from the third party, firstly we need to list all the financial

information up for both patterns, alternative 1 (manufacturing internally) and alternative 2

(buy from outside). Therefore, I would consider if each item is relevant or irrelevant, and

compare the total manufacturing cost.

Table1

Financial comparison between alternative 1 and 2 in case of 50,000 units per year

Variable costs

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)

 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

Direct materials, direct labor and manufacturing overhead are relevant, because if the

company buy products from third party they would no longer need to pay for these costs. On

the other hand, they need to pay for the third party to purchase goods.

Fixed costs

Not all but some of costs categorized as fixed factory overhead are recognized as

irrelevant. According to the prerequisites in this assignment, 75% of the fixed factory

overhead continue to be costed even if the company buy from third party.

Conclusion

According to the analysis above, we can summarize the result of outsourcing the

production as following (Heisinger, n.d.).

Table2

Result of Outsourcing Production of Engine Components in case of 50,000 units per

year

Here we can conclude the total manufacturing needed when they produce internally is

lower than when they buy from the third party. The difference is $75,000 if we assume the

company needs 50,000 units per year.

References

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)

 lOMoARcPSD|5252336

BUS 5110: Managerial Accounting- Written Assignment Unit 4

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved from

https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Osiemo, J. (2017). Make or Buy Decisions. Retrieved from

http://www.managerialaccountingcourse.com/makebuy.php

Downloaded by Emmanuel Gift Bernard (emmanuelgiftbernard@gmail.com)