Activity 5.5.

7
1. Unit direct cost of making product X: Direct labor costs per unit + direct material
costs per unit = 5+4=$9
Unit direct cost of making product Y: 7+12= $19
2. Product X: 9 ⋅500=4500
3. Product Y: 19 ⋅1000=19000
4. Product X: 500 ⋅11=5500
Product Y: 1000 ⋅24=24000
When considering whether it is more beneficial to make product Y, since it’s cheaper, or buy
product X, being also cheaper, the business should take into account the followings. Firstly,
it’s unsure whether the supplier, or delivery of the components product Y is made.
However, the business could have greater profitability since costumers may prefer products
that have been made and not bought, and thus the business could have a competitive
advantage. Still, skilled employees and reliable machinery is required to make products,
thus additional costs and responsibilities. Lastly, if the business wants to have control over
its products and differentiate them from what exists in the market, the best decision would
be to produce them.
4000000
11. Capacity utilization in 2012: ⋅100=80%
5000000
3700000
2013: ⋅100=74 %
5000000
3000000
2014: ⋅100=60 %
5000000
3000000
Average fixed costs in 2012: ⋅ 100=75 %
4000000
3000000
2013: ⋅100=82%
3700000
3000000
2014: ⋅100=100 %
3000000

As the company’s capital utilization drops, fixed costs will increase since fewer units are
required to cover fixed costs. When utilization is high, however, fixed costs are spread over a
large number of units, making them relatively low.
 1500000
12. Labour productivity for 2012: =750
2000
1800000
2013: =857
2100
1600000
2014: =780
2050