Management Accounting Case Study

In: Business and Management

Submitted By fahmisabki
Words 491
Pages 2
9-40 Make or Buy; Strategy; Ethics (45 min)

1. An analysis of per unit and total costs for 32,000 units shows that the Midwest Division should purchase the parts for a saving of $15,440 ($575,040 - $559,600).

Cost per unitTotal CostCost to purchase MTR-2000 from Marley Bid price from Marley$17.30$553,600 Equipment lease penalty [($36,000/12)x2]6,000Total cost to purchase$559,600
Cost for Midwest to Make MTR-2000 Direct material ($195,000/30,000)x1.087.02$224,640 Direct labor ($120,000/30,000)x1.054.20134,400 Factory space rental ($84,000/32,000)2.62584,000 Equipment leasing costs($36,000/32,000)1.12536,000 Variable manufacturing overhead3.0096,000Total cost to make$17.97$575,040

2. At least three strategic factors that the Midwest Division and Paibec Corporation should consider before agreeing to purchase MTR-2000 from Marley Company include the following:
The quality of the Marley component should be equal to, or better than, the quality of the internally made component, or else the quality of the final product might be compromised and Paibec's reputation affected.
Marley's reliability as an on-time supplier is important, since late deliveries could hamper Paibec's production schedule and delivery dates for the final product.
Layoffs may result if the component Is outsourced to Marley, This could impact Midwest's and Paibec's other employees and cause labor problems or affect the company's position in the community, In addition, there may be termination costs which have not been factored into the analysis.
Giving up production capability risks dependence upon Marley’s future pricing. Problem 9-40 (continued)

3. Referring to the specific standards for ethical practice by a management accountant, Lynn Hardt should consider the ethical standards of competence, integrity, and objectivity:
Competence
Prepare complete and clear…...

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