Shown below is next year's budget for the Forming and Finishing departments of Tooton Ltd. The departme nts manufacture three diff erent types of component wh ich are incorporated into the outpu t of the firm's finished products

Manufacturing times :

The Forming Department is mechanised and employs only one grade of labour, the Finishing Department employs several grades of labour with differing hourly rates of pay.
Required:

(a) Calculate suitable overhead absorpt ion rates for the Forming and Finishing Departments for next year and include a brief explanation for your choice of rates.

(b) Another firm has offered to supply next year's budgeted quant ities of the above components at the following prices :
Component A £30. Component B £65. Component C £60 Advise management whether it would be more economical to purchase any of the above components from the outside supplier. You must show your workings and, considering cost criteria only, clearly state any assumptions made or any aspects which may require further investigation.
Ie) Critically consider the purpose of calculating production overhead absorption rates.

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A B 14,000 units 10,000 units C 6,000 units per unit per unit per unit 8 7 Component Production Prime costs: Direct materials - Forming Dept Direct labour - Forming Dept - - Finishing Dept 9 15 2621 9 12 802 24 31 29 60121