4.24 Make or buy decision The management of Springer plc is considering next year's production and purchase budgets. One of the components produced by the company, which is incorporated into another product before being sold. has a budgeted manufacturing cost as follows: (E) Direct material 14 Direct labour (4 hours at 12 per hour) 48 Variable overhead (4 hours at 2 per hour) 8 Fixed overhead (4 hours at 5 per hour) Q Total cost Q per unit Trigger plc has offered to supply the above component at a guaranteed price of 86 per unit. Required: (a) Considering cost criteria only, advise management whether the above component should be purchased from Trigger plc. Any calculations should be shown and assumptions made, or aspects which may require further investigation should be clearly stated. (6 marks) (b) Explain how your above advice would be affected by each of the two separate situations shown below. (i) As a result of recent government legislation if Springer plc continues to manufacture this component the company will incur additional inspection and testing expenses of 56 000 per annum, which are not included in the above budgeted manufacturing costs. (3 marks) (ii) Additional labour cannot be recruited and if the above component is not manufactured by Springer plc the direct labour released will be employed in increasing the production of an existing product which is sold for 146 and which has a budgeted manufacturing cost as follows