Apex Electronics Ltd. is a leading Indian manufacturer of smart home devices. Until now, the company has produced all device components in-house.…

CA Intermediate · Cost and Management Accounting · MTP · September 2025
Apex Electronics Ltd. is a leading Indian manufacturer of smart home devices. Until now, the company has produced all device components in-house. However, due to a temporary shortage of skilled labour, the company is exploring the possibility of outsourcing the production of some key components for its flagship product: the Smart Speaker. The components under consideration are: Voice ModuleControl PanelPower Adapter The following data relates to the manufacturing of 5,000 units of each component: Component Voice Module Control Panel Power Adapter Labour Hours per Unit 1.2 2 3.5 Machine Hours per Unit 0.8 0.6 0.3 Direct Labour (₹) 1,500 2,000 1,200 Direct Material (₹) 1,200 1,800 1,100 Variable Overhead (₹) 700 900 600 Fixed Overhead (₹) 600 750 550 Purchase Price from Supplier (per unit) (₹) 3,700 4,600 3,300 Additional details: Labour availability for the upcoming month is limited to 4,000 hours. The company must produce 4,000 units of each component in the next month. Required CALCULATE how many of each product should be made in-house and how many should be outsourced.

Suggested Answer and Working Notes:

Calculation of Relevant In-House Cost and saving: Component Voice Module Control Panel Power Adapter Direct Labour (₹) 1,500 2,000 1,200 Direct Material (₹) 1,200 1,800 1,100 Variable Overhead (₹) 700 900 600 Total In-House Cost (₹) 3,400 4,700 2,900 Outsource Price (₹) 3,700 4,600 3,300 Saving (₹) 300 (100) 400 Labour Hours per Unit 1.2 2 3.5 Savings per Labour hour (₹) 250 - 114.29 Rank I II Note: As the internal cost of making the control panel exceeds the external purchase price of buying, it would be beneficial to outsource their production entirely. Allocate Labour Efficiently Make Voice Modules first: Labour needed per unit = 1.2 hours To make all 4,000 units: 4,000 × 1.2 = 4,800 hours (available 4,000 hours) Max units company can make = 4,000 ÷ 1.2 = 3,333 units Component Make In-House Outsource Voice Module 3,333 units 667 units Control Panel 0 units 4,000 units Power Adapter 0 units 4,000 units

Topics: Marginal Costing

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