PLease answer it step by step and explain with details . QUESTION3 Smith Industr

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PLease answer it step by step and explain with details .

QUESTION3 Smith Industries has been producing two components X12 and Y18, for use in production. Data regarding these two components is presented below X12 Y18 Machine hours required per unit Direct material Direct labour 2 2.0 hours 2.5 hours $2.50 $5.00 SA $4.00 $4.00 $2.50 $5.00 Variable manufacturing overhead-?$3.00 Fixed manufacturing overhead $4.00 Variable manufacturing overhead is applied on the basis of direct labour hours. Fixed manufacturing overhead is applied on the basis of machine hours. Smith Industries' annual requirement for these components is 8,000 units of X12 and 11,000 units of Y18. Recently, Smith Industries' management decided to devote additional machine time to other product lines resulting in only 31,000 machine hours per year that can be dedicated to the production of the components, X12 and Y18. An outside company has offered to sell Smith Industries the annual supply of the components, X12 and Y18, at prices of $11.50 for X12 and $13.50 for Y18. Smith Industries wants to schedule the otherwise idle 31,000 machine hours to produce components so that the company can minimise its costs and maximise its net benefits. Required: [show workings up to 2 decimal places, where applicable] a) Assume that Smith Industries decides to make all of component X12 and purchase component Y18 from an outside company as required. Determine the number of Y18 components to be purchased b) Independent of (a) above, which component (X12 or Y18) should Smith Industries plan to manufacture first with the limited machine hours available? Calculate the total financial benefit resulting from your answer. Define Relevant Costs and List examples of costs to be included under the definition and examples to be excluded c)

Explanation / Answer

(c)Relevant Cost: means cost which is used to arrive at decision on the basis of Specific/relevant cost and directly impact on the decision making process. In other word, it can be called as Incremental cost , differential cost, avoidable cost etc.

Example of Cost to be included:- Material Cost, Labour Cost, Variable Overhead etc.

Example of Cost to be Excluded: Rent, Administration expense, Fixed Salaries, Committed expenses

a. Computation of No of Y18 component to be purchased Total Machine Hours Require (8000*2+11000*2.50) 43500 Less: Available Machine Hours 31000 Machine Hours Shortage 12500 Machine Hour Required to Prodcue per Unit/Y18 2.5 Hours No. of Y 18 Unit to be purchased 5000

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