Problem 2 (Financial Management)

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The company producing electrical equipment shall decide whether to perform themselves on existing equipment 250 000 pieces of component parts, or buy them on the side for the price of 0.37 rubles. per Unit. If it is decided to produce their own parts, the cost of production will be 0.5 rubles (Table. 1).
Buying detail on the side, the company can avoid the variable costs in the amount of 75,000 rubles. and reduce fixed costs 10 000 rubles.

Table 1
The cost of production of parts
in rubles.
Direct materials for the entire production volume parts
Direct Salary
Variable overhead
Fixed overhead costs 40,000
Total cumulative cost of production:
The production cost per unit of product 125 000
After analyzing the situation, it is necessary to choose the most favorable option for the enterprise solutions:
1) to produce parts on their own;
2) to acquire the details on the side and not to use freed own equipment;
3) to acquire the details on the side and use the released equipment for the production of other products that can bring profit in the amount of 18,000 rubles.


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