Limiting factor and make or buy decision Merry! Ltd manufactures four components (E, F, G and H) which are incorporated into different products made by the company. All the components are manufactured using the same general purpose machinery. The following production cost and machine hour data are available:

The fixed production costs represent a share of factory-wide costs that have been related to the individual components by using a direct labour hour rate. There are no fixed costs which can be specifically related to individual components. 2 From next month the company’s monthly manufacturing requirements are for 2000 units of each component. The maximum number of machine hours available for component manufacture is 35000 per month.
The company can purchase any quantity of each component from Sergeant Ltd at the following unit prices next month:

Transcribed Image Text:

Variable production cost ( per unit) Fixed production cost ( per unit) General purpose machine hours per unit E F G H 32 265 27 34 35 14 6 87 16 8