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Analysis of Liquid Chemical Company Case

Please help check and correct my accounting problems:

Analysis of
Case Liquid Chemical Company

Questions and Problems for Consideration
1. Given the two alternatives do the work inside or subcontract it to Packages Ltd?
2. What are the advantages of one alternative over the other?
3. Which action would you favor?

Please see attached.


Solution Preview

Let us see what are the sunk costs and what are the allocated costs ( costs which will not chnage even if the plant is closed) and then get the actual cost of operation of the plant and compare with the outside quotation.

1. Material - If we produce in house, material will be required. It is in 2 parts, 100,000 other and 40,000 GHL. The other material will be 100,000. GHL was bought at 1000 per ton and can be sold today at 800 a ton. The costing would be at 1000 a ton. If we sell it we can realize 800 a ton, therefore the realization cost should be used in the calculation. If we are using 40,000 at 100 a ton, at 800 a ton it will be 32,000. The total material cost to be taken is ...

Solution Summary

The solution presents an analysis of make or buy decision in the Liquid Chemical Company