Determine the relevant cost for this contract of each of the three types of material and of labour.
BSE Veterinary Services is a specialist laboratory carrying out tests on cattle to ascertain whether the cattle have any infection. At present, the laboratory carries out 12,000 tests each period but, because of current difficulties with the beef herd, demand is expected to increase to 18,000 tests a period, which would require an additional shift to be worked. The current cost of carrying out a full test is:
per test
Materials
115
Technicians ’
wages
30
Variable overhead
12
Fixed overhead
50
Working the additional shift would:
(i) Require a shift premium of 50 per cent to be paid to the
technicians on the additional shift.
(ii) Enable a quantity discount of 20 per cent to be obtained for all materials if an order was placed to cover 18,000 tests.
(iii) Increase fixed costs by £700,000 per period.
The current fee per test is £300.
I would like you to use the information from this question to respond to the following:
What decision making model would you use to make this decision?
Are any of the decision-making traps discussed in our text in danger of clouding your judgement?
Would any of the tools and techniques for making better decisions assist us in this decision?
What is your final decision and why?
Please be aware that I am not asking you to provide the calculations for this problem. While I would like you to understand how the problem is solved, the solutions are at the end of the section, so you should have the accurate information to make your final decision. The point of this paper is for you to apply the decision making techniques to the area of managerial accounting. In addition, use the above bullets as a guide for your paper…I do not want to see these listed as individual sections within your paper.
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