This analysis requires you to demonstrate your skills in using cost-volume profit analysis to make decisions. The use of
Posted: Sun Apr 10, 2022 8:43 am
This analysis requires you to demonstrate your skills in using
cost-volume profit analysis to make decisions.
The use of CVP analysis to decide whether to outsource a
contract Recycl-able has a large contract with the local education
authority to collect and recycle all recycling from the primary
schools in the area. The authority has just informed the company
that, due to the recent housing expansion, three new primary
schools will need servicing this year. Recycl-able does have the
option of outsourcing this additional work to a competitor
(Paperwork) who has undertaken work for the company before. You
need to perform the required CVP analysis (using the data below) to
decide whether the company should service the three new schools
in-house or outsource the work. In addition, the Finance Director
has asked that you give a brief description of why CVP analysis can
be used in this scenario and discuss the limitations of the
process. Your discussion should also consider what non-financial
factors should be considered as a part of the decision. Recycl-able
Data:
Additional work data: Additional production cycles required per
new school 150 Additional revenue per school £75,000 Total Direct
Labour Hours required per cycle 10 Direct Labour cost per hour £20
Indirect Labour cost £100,000 Direct Material costs per labour hour
£10 Variable costs per labour hour £5 Interest Payable 250 Fee
payable to Paperwork (per cycle) £300
cost-volume profit analysis to make decisions.
The use of CVP analysis to decide whether to outsource a
contract Recycl-able has a large contract with the local education
authority to collect and recycle all recycling from the primary
schools in the area. The authority has just informed the company
that, due to the recent housing expansion, three new primary
schools will need servicing this year. Recycl-able does have the
option of outsourcing this additional work to a competitor
(Paperwork) who has undertaken work for the company before. You
need to perform the required CVP analysis (using the data below) to
decide whether the company should service the three new schools
in-house or outsource the work. In addition, the Finance Director
has asked that you give a brief description of why CVP analysis can
be used in this scenario and discuss the limitations of the
process. Your discussion should also consider what non-financial
factors should be considered as a part of the decision. Recycl-able
Data:
Additional work data: Additional production cycles required per
new school 150 Additional revenue per school £75,000 Total Direct
Labour Hours required per cycle 10 Direct Labour cost per hour £20
Indirect Labour cost £100,000 Direct Material costs per labour hour
£10 Variable costs per labour hour £5 Interest Payable 250 Fee
payable to Paperwork (per cycle) £300