Question

liction of
manufacturing
Ane
another el
Per una
45:
Illustration
(v) The cost of the machine bought
decision of 'make or buy'. Book value of the machine is merely all
POLimited manufactures and sells a range of products. For one of its products, it makes 2,000 units
of a component which has the following budgeted manufacturing cost :
Vanable Overhead (40 hours @ 75 per labour)
Direct Labour (specially skilled) (40 hours @ 150 per hour)
Allocated Fixed Overhead
Total Production Cost
Particulars
Direct Labour
Cost Per Unit()
8,000
6,000
3,000
10,000
27,000
lachine
soldat
ted)
Softech Limited has offered to supply the component at a guaranteed price of 25,000 per unit.
employed in increasing the production by 1,600 units of an existing product K, which uses 50 of this
If the component is not manufactured by PQ Limited, all the direct labour thus released can be
retrenched or recruited for the next two production periods. From a financial perspective, using
production of 30,000 per unit and has sufficient market demand. The direct labour force cannot be
incremental cost analysis, would you advise PQ Ltd. to make or buy the component for the forthcoming
1of direct labour hours per unit. K is sold for 45,000 per unit and has a marginal cost of
type
(CA-Final, May 2015, adapted)
production period ?
Solution :
Statement Showing "Incremental Analysis - Make or Buy (2,000 units)"
Amount
If Make-Cost If Buy-Cost
₹
Particulars
₹
Direct Materials
Add: Direct Labour
Add: Variable Overhead
chase Price
1,60,00,000
1,20,00,000
60.00,000
3,40,00,000
5,00,00,000​

Answer 1

Answer:

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