ACCA · Question 24 · Make or Buy Decisions
Section B - Case 2: BioNutri
BioNutri manufactures two specialized nutritional supplements: Alpha and Beta. Both products require processing on a specialized mixing machine. The machine is available for a maximum of 1,200 hours per month.
Product details:
Alpha: Selling price $50, Variable cost $30, Machine hours per unit: 2 hours. Maximum demand: 400 units.
Beta: Selling price $70, Variable cost $40, Machine hours per unit: 4 hours. Maximum demand: 300 units.
An external supplier has offered to manufacture Product Alpha for BioNutri at a price of $38 per unit. Assuming machine hours remain limited to 1,200, should BioNutri make or buy Product Alpha?
Answer options:
Make, because the variable cost to make ($30) is lower than the purchase price ($38).
Make, because buying it would reduce the overall contribution of the company.
Buy, because the relevant cost of making Alpha is $45, which is higher than the purchase price of $38.
Buy, because the supplier's price of $38 is lower than the selling price of $50.
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