Management Accounting Re-sit – July 2020
Note: All exam materials, questions, and solutions are the property of the course
coordinators who developed the exam content. Any unauthorized sharing,
reproduction or distribution is strictly prohibited!
Question 1 (20 points)
Ryan Corp. is a manufacturer of interactive entertainment products that are sold across
Europe. The Phantom Pro – a game console produced by the Game Console Division (G
Division) - is Ryan’s most popular product. The product is equipped with a video card RTX9
that is currently produced in-house by Ryan’s Technologies Division (T Division). The RTX9
is exclusively produced for game consoles of Ryan’s G Division and not sold externally.
The following information pertains to the current year’s (2020) production of the RTX9 video
card:
Number of units manufactured for G Division 5,000,000
Direct materials cost per unit €37.25
Direct labor cost per unit €18.35
Variable manufacturing overhead cost per unit €7.75
Fixed manufacturing overhead cost per unit €25.60
Nankai Technologies, a specialist in the development of graphics processing units, has offered
to supply Ryan with up to 10 million units of RTX9 at a price of €84.50 each, including all
shipping costs. The G Division expects the required units of RTX9 to increase by 1 million in
2021 compared to 2020. The T Division of Ryan has capacity to produce up to 6 million units
and expects the following for the production of RTX9 in 2021:
Increase in direct materials cost per unit + 2%
Increase in direct labor cost per unit + 5%
Decrease in variable manufacturing overhead cost per unit ̶ 2%
In case Ryan decides to buy the video card RTX9 from Nankai Technologies, the T Division
has an alternative use of the idle capacity which is expected to produce a contribution margin
of €80,600,000. Additionally, it is expected that 10% of the fixed costs allocated to RTX9 are
avoidable if RTX9 is bought externally.
, Question 1 (20 points)
Determine whether Ryan should keep manufacturing the RTX9 video cards or buy them from
Nankai Technologies at the offered price. Also determine the maximum price per unit of RTX9
that Ryan would be willing to pay in order to accept Nankai’s offer. Show all calculations and
justify your answer.
Conclusion: Ryan should keep manufacturing the RTX9 because the maximum price Ryan is
willing to pay is lower than the actual price (€84.50 > €80.42). [or alternative argumentation:
Ryan should keep manufacturing the RTX9 because it results in €24,455,000 lower costs than
outsourcing the production to Nankai.]
Per unit
Make Buy
Total variable costs
Direct material costs €227,970,000 =37.25*1.02*6 Mio
Direct labour costs €115,605,000 =18.35*1.05*6 Mio
Variable manufacturing
overhead €45,570,000 =7.75*0.98*6 Mio
€389,145,000 €507,000,00 =84.50*6 Mio
Fixed manufacturing overhead €128,000,000 =25.60*5 Mio €115,200,000 =25.60*5*0.9 Mio
Opportunity Cost €80,600,000
Costs €597,745,000 €622,200,000
Maximum price = (€597,745,000 - €15,200,000) / 6,000,000 = €80.42
Note: All exam materials, questions, and solutions are the property of the course
coordinators who developed the exam content. Any unauthorized sharing,
reproduction or distribution is strictly prohibited!
Question 1 (20 points)
Ryan Corp. is a manufacturer of interactive entertainment products that are sold across
Europe. The Phantom Pro – a game console produced by the Game Console Division (G
Division) - is Ryan’s most popular product. The product is equipped with a video card RTX9
that is currently produced in-house by Ryan’s Technologies Division (T Division). The RTX9
is exclusively produced for game consoles of Ryan’s G Division and not sold externally.
The following information pertains to the current year’s (2020) production of the RTX9 video
card:
Number of units manufactured for G Division 5,000,000
Direct materials cost per unit €37.25
Direct labor cost per unit €18.35
Variable manufacturing overhead cost per unit €7.75
Fixed manufacturing overhead cost per unit €25.60
Nankai Technologies, a specialist in the development of graphics processing units, has offered
to supply Ryan with up to 10 million units of RTX9 at a price of €84.50 each, including all
shipping costs. The G Division expects the required units of RTX9 to increase by 1 million in
2021 compared to 2020. The T Division of Ryan has capacity to produce up to 6 million units
and expects the following for the production of RTX9 in 2021:
Increase in direct materials cost per unit + 2%
Increase in direct labor cost per unit + 5%
Decrease in variable manufacturing overhead cost per unit ̶ 2%
In case Ryan decides to buy the video card RTX9 from Nankai Technologies, the T Division
has an alternative use of the idle capacity which is expected to produce a contribution margin
of €80,600,000. Additionally, it is expected that 10% of the fixed costs allocated to RTX9 are
avoidable if RTX9 is bought externally.
, Question 1 (20 points)
Determine whether Ryan should keep manufacturing the RTX9 video cards or buy them from
Nankai Technologies at the offered price. Also determine the maximum price per unit of RTX9
that Ryan would be willing to pay in order to accept Nankai’s offer. Show all calculations and
justify your answer.
Conclusion: Ryan should keep manufacturing the RTX9 because the maximum price Ryan is
willing to pay is lower than the actual price (€84.50 > €80.42). [or alternative argumentation:
Ryan should keep manufacturing the RTX9 because it results in €24,455,000 lower costs than
outsourcing the production to Nankai.]
Per unit
Make Buy
Total variable costs
Direct material costs €227,970,000 =37.25*1.02*6 Mio
Direct labour costs €115,605,000 =18.35*1.05*6 Mio
Variable manufacturing
overhead €45,570,000 =7.75*0.98*6 Mio
€389,145,000 €507,000,00 =84.50*6 Mio
Fixed manufacturing overhead €128,000,000 =25.60*5 Mio €115,200,000 =25.60*5*0.9 Mio
Opportunity Cost €80,600,000
Costs €597,745,000 €622,200,000
Maximum price = (€597,745,000 - €15,200,000) / 6,000,000 = €80.42
