Sant Gadge Baba Amravati University 2009 B.A Institute of cost and management account - Question Paper

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

1st Comprehensive exam

CASE # 1
Marks:30
The management of Bahadur Company is a manufacturing concern. It has been considering different choices which included
the following:
1. Whether to buy the products from a vendor, or
2. Make / manufacture these internally, or
3. Use a few combination of make and buy.
The concept .make or buy analysis. involves special studies for the valuation of options involving the manufacture or
purchase of products and parts.
The current situation is that the above enterprise has 2 departments and every operates normally 40 hours per week.
Department one has 15 machines with a normal operating time of 600 (15x40 = 600) machine hours per week and Department
2 has eight machines or 320 (8x40 = 320) machine hours per week. The current demand for Product A is 5,000 units and for
Product B is 4,000 units. Based on collected statistics the needed usage co-efficient (machines hours needed for every unit
of output) are as under:
The enterprise has 1 clear object namely, to produce and purchase in a manner enabling it to meet the demand at the
lowest cost. There is a Cost Accounting part in the enterprise. This part has prepared the subsequent cost estimates:
A: Variable cost per machine hour:
Department Regular Time Overtime
1 Rs. 600 Rs. 900
2 Rs. 720 Rs. 1,080
Machine Product Hours per Unit Department-1 Department-2
A 0.1 0.2
B 0.3 0.2
2 of 2
B: Raw materials costs:
Product Cost
A Rs. 600 per unit
B Rs. 300 per unit
A vendor offers to supply Product A at Rs. 1,080 and Product B at Rs 720 per unit respectively.
The management shows several decision options. These included the following:
1. Varying volumes of Products A and B can be manufactured. If this is followed this will constitute 2 decision
variables.
2. Varying hours of overtime can be used in the 2 departments. This requires 2 additional variables.
3. Varying volumes of Products A and B can be purchased from the vendor; hence 2 additional decision
variables.
The basic objective of the management is to minimize the cost.
Required:
The management wishes to be educated for an ans based on Cost Accounting approach indicating all available
alternatives. You are needed to help the management out in making optimal decision.

Earning:   Approval pending.