1.0 0.5 Fixed costs for next year are expected to total £42,000. It is the business’s policy for each unit of production to absorb these in proportion to its total variable costs.

The business has cutting machine capacity of 5,000 hours a year and assembling machine capacity of 8,000 hours a year.

Required:

(a) State, with supporting workings, which products in which quantities the business should plan to make next year on the basis of the above information. (Hint: First determine which machines will be a limiting factor (scarce resource).)

(b) State the maximum price per product that it would be worth the business paying to a subcontractor to carry out that part of the work that could not be done internally.