PART TWO It has been several years now, and Trump & Trudeau Inc. (T&T;) have gro

Question

PART TWO It has been several years now, and Trump & Trudeau Inc. (T&T;) have grown substantially and created a new division to produce a specialized board game aimed at attracting youth into the world of surfing. The division is in the final development stage of a new game called "Surf Dude." T&T; realize to capitalize on the winter holiday season they need to get it out to distributors, so they can stock at their retail level. The Vice President of the division is considering an offer from another manufacturer to supply the game boards for $5.60 per board. This is a common practice within this industry. T&T; 's CFO has developed the following cost estimates for the production of the game board: Direct Material Direct Labour Production Overhead Corporate Overhead Cost of Game Board Cost Per Unit of Surf Dude $3.20 0.80 1.98 ,48 $6,46

Explanation / Answer

Alt 1) Make the game board

Note = fixed production overhead & corporate overhead are irrelevant.

Alt 2) Buy the board

Cost per unit = 5.60 $

Hence company should make the board since it is less than the cost of buying them.

If the demand is more than 25000 , the company will have to buy boards because current machinery only has spare capacity of 25000 units.

particulars Amount per unit Direct material 3.20 $ Direct labour 0.80$ Production OH ( Variable) (1.98*50%) 0.99 Cost per unit 4.99$

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