1. A car manufacturing company use to buy a small spare part from a local supplier at a cost of Rs.150. Production department has recommended that instead of buying this part from a local supplier company should manufacturing it by its own. Production department has given the following estimates for production of 30000 Units per month

Direct Material Rs.52 per unit

Direct Labour 48 per unit

Electricity 14.5 per unit

Supervisor Salary per month 150000

Depreciation per month 200000

Allocated Manufacturing Overheads per month 350000

What will be the financial advantage (disadvantage) company will have in units and total of producing the spare part. Should company buy or produce spare part. (06 marks)

What would be the financial advantage (disadvantage) in total if company keep on buying the product from outside supplier then space that would be used for production purpose can be rented out for Rs.250000. (04 marks)

Suppose company has revised the estimated of number of units to be produced and now estimates that company will need to produce 60000 units. In order to produce these number of units company need to acquire a new equipment on rent. The rental cost of new equipment would be 250000 . What will be the financial advantage (disadvantage) in units and total company will have of producing the spare part in this case. Should company buy or produce spare part. Do not consider rental income of free production space given in above part. (05 marks)