Adapting the obsolete materials for use as a substitute for a sub-assembly that is regularly used within the firm. Details of the extra work and materials required are as foJJows:

1200 units of the sub-assembly are regularly used per quarter, at a cost of £900 per unit. The adaptation of material XY would reduce the quantity of the sub-assembly purchased from outside the firm to 900 units for the next quarter only. However, since the volume purchased would be reduced, some discount would be lost, and the price of those purchased from outside would increase to £1050 per unit for that quarter.
Materilal C is not avaiable externally, but is manufactured by Brown Ltd. The 1000 units required would be available from stocks, but would be produced as extra production. The standard cost per unit of material C would be as follows:

The wage rates and overhead recovery rates for Brown Ltd are

The unskilled labour is employed on a casual basis, and sufficient labour can be acquired to exactly meet the production requirements. Semi-skilled labour is part of the permanent labour force, but the company has temporary excess supply of this type of labour at the present time. Highly skilled labour is in short supply and cannot be increased significantly in the short term; this labour is presently engaged in meeting the demand for product L, which requires 4 hours of highly skilled labour. The contribution from the sale of one unit of product L is £24.
Given this information, you are required to present cost information advising whether the stocks of material XY should be sold, converted into a specialized product (alternative 1) or adapted for use as a substitute for a sub-assembly (alternative 2)

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Material C Direct labour: 4000 hours unskilled 1000 units 1000 hours semi-skilled 4000 hours highly skilled 9000 hours