Shown below is next year's budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which are incorporated into the output of the firm's finished products.

The forming department is mechanized 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 absorption rates for the forming and finishing depart- ments for next year and include a brief explanation for your choice of rates. (6 marks)

(b) Another firm has offered to supply next year's budgeted quantities of the above components at the following prices:

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 that may require further investigation. (8 marks) rates.

(c) Critically consider the purpose of calculating production overheads absorption (8 marks)

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Production Component A Component B Component 14000 units 10000 units 6000 units Prime cost ( per unit): Direct materials Forming dept Direct labour Forming dept Finish dept 9 8 7 9 9 12 31 29 282 10 22 24 Manufacturing times (hours per unit): Machining Forming dept Direct labour Forming dept Finishing dept 23 15 4 3 2 3 3 10 42 4 2 Variable overheads Fixed overheads Machine time required and available Labour hours required and available Forming department () 200 900 401 800 602 700 Finishing department () 115 500 231000 346 500 98 000 hours 82 000 hours 154 000 hours