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ACCA Applied Skills · Performance Management · Make-or-buy and other short-term decisions

Brindle Co makes products X and Y using a scarce 10,000 machine hours. X: variable cost $12, machine time 2 hours, buy-in price $20 per unit. Y: variable cost $15, machine time 3 hours, buy-in price $21 per unit. Which product should Brindle prefer to make in-house first?

Brindle should make X first because buying X costs $8 more per unit, which is $4 per machine hour, against $2 per hour for Y. With limited machine hours, the product with the highest saving per hour of making should be produced in-house.

  1. AY, because extra cost of buying is $6 and $2 per hour
  2. BX, because it saves $4 per machine hourCorrect
  3. CX, because it has the lower variable cost
  4. DY, because it saves $2 per machine hour

Explanation

Extra cost of buying X = $8, over 2 hours = $4 per hour. Extra cost of buying Y = $6, over 3 hours = $2 per hour. Make X first, as it saves most per scarce hour.

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