Question

Part 4 Colin O'Shea has a carpentry shop that employs 4 carpenters. Colin received an order for 1,000 coffee tables. The coffee tables have a round table top and four decorative legs. An offer for $500 per table was received. Colin found an unfinished round table top that he could buy for $50 each Requirements: Using this quantitative cost data to make the table top, should Colin buy the table top or make it? 1. $10 $35 $10 $ 7 Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Hint: Prepare an analysis of the relevant costs to make vs the relevant costs to buy (similar to the one shown in the textbook). What qualitative factors would be included in your decision? 2.

Please answer all parts

Answer 1

Solution :- Calculation of the Relevant Costs to make the Table Top :-

Direct Materials	$10
Direct Labour	$35
Variable Manufacturing overhead	$10
Total Relevant Costs	$55

W Note : Fixed Manufacturing overhead is a sunk cost , therefore not to be included in the total relevant costs.

Relevant Cost to buy the Table Top = $50 per unit

Since the Relevant Cost in buying the table top ($50 per unit) is less than the Relevant Cost in making the table top($55 per unit), therefore Colin should buy the table top for $50 per unit.

2. Qualitative Factors to be considered while buying the table top :-

• The round table top that Colin will buy should be of perfect quality.
• Delivery of the round table top should be on time.