Unfavourable Raw Materials Usage Variance Assignment
2.1 REQUIRED to Refer to the information provided below and answer the following questions:
2.1.1 Use the relevant quantitative information to advise Sonie Jewellers Limited whether it should make or buy the jewellery cases. (5)
2.1.2 State two qualitative factors that should be considered when making a decision about purchasing from an outside supplier. (2)
INFORMATION Sonie Jewellers Limited, a manufacturer of jewellery, reports the following costs of making 20 000 jewellery cases for the jewellery sets that it manufactures and sells:
|Total cost||Cost per case|
|Direct materials||R100 000||R5|
|Direct labour||60 000||3|
|Variable factory overheads||80 000||4|
|Fixed factory overheads||160 000||8|
|Total costs||R400 000||R20|
Another manufacturer offers to sell the jewellery cases for R17 each to Sonie Limited. Suppose Sonie Limited’s capacity to make the cases would become idle if it purchases the cases and that the R80 000 supervisor’s salary is the only fixed cost that the company would eliminate.
2.3 Provide 2 possible reasons for unfavourable raw materials usage variance. (2) .