Bendix Ltd is considering the alternatives of either purchasing component VX-1 from an outside supplier or producing the component itself. Production costs to Bendix are estimated at:

An outside supplier, Cosmo pic, has quoted a price of £1,000 for each VX-1 for an order of 100 of these components. However, if Bendix accepts the quote from Cosmo, the company will need to give three months' notice of redundancy to staff.
Calculate the relevant costs of the alternative choices (show your workings) and make a recom¬ mendation to management of which choice to accept.
• How would your recommendation differ if Bendix employees were on temporary contracts with no notice period?
• Explain the significance of a stock valuation of £1, 300 for the VX-1 at the end of the last accounting period.

Transcribed Image Text:

Direct labour 200 Direct materials 600 Variable overheads 100 Fixed overheads 300 Total 1,200