Question 8

Question 8 – Musgrave and Aldridge Ltd

Musgrave and Aldridge Ltd manufacture shirts and blouses. They have been established a number of years and are well known for the quality of their product.

A company overseas has offered to manufacture one particular style of men’s shirt - the ‘Royal’ - at a cost of £21 each.

The management accountant at the company has prepared the following cost estimate per unit of output – based on current production levels for the ‘Royal’ design:

		£
	Direct Materials	11
	Direct Labour	4
	Variable Overhead	3
	Fixed Overhead	5
		23

Currently there are no further uses of the production facilities at the company’s plant.

Questions

1 Advise the management of Musgrave and Aldridge Ltd whether or not, from a purely financial view, the “Royal” design shirts should be bought in from overseas. (15 marks)

2. Other than the financial implications, what other factors should the management of the company consider before making a final decision? (15 marks)