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Problem 4 Decision Making (20 marks)

Problem 4 - Decision Making (20 marks) Part A - Make or Buy (10 marks) DiP Company manufactures a part for use in its production of a medical equipment that is widely used in hospitals. When 10,000 items are produced, the costs per unit are: HEP Company has offered to sell 10,000 units of the same part for $120 per unit. The plant facilities could be used to manufacture another part that generates income of $180,000 if DiP Company accepts HEP's offer. In addition, $20 per unit of fixed manufacturing overhead would be eliminated. Required: Provide a make or buy decision-making analysis, with supporting relevant costs under each altemative. Should DiP Company make or buy the part? (10 marks) Part B - Special Order (10 marks) DALA Electronic Corporation ("DALA") makes a range of products. Management is considering a special order from a well-known household name for purchasing 200 units of product SX at $125 each. The normal selling price of product SX is $152 and the unit product cost is determined as follows: If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, and total fixed manufacturing overhead would not be affected by the special order. Required a Should the company accept the special order or not? Please provide supporting calculations. (6 marks) b. All the information in the problem holds true except that the company only has access capacity of 100 units. In hoping to gain big and regular orders from this well-known household name company. DAL.A decides to sacrifice 100 units of sale to the existing customers to accommodate this special sale. What would be the impact on DAL.A's overall profit? (4 marks) (Total 20 marks)

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