5. X Ltd. is engaged in the manufacture of Television sets. It produces 24000 such gadgets p.a. The company also manufactures 24000 units of a component. The departmental expense budget p.a is as under:

(Rs.)

Direct Material

3840000

Direct Labour

1536000

Indirect labour

720000

Inspection and testing

480000

Lighting

40000

Power

480000

Insurance

30000

Depreciation (fixed)

96000

Misc. fixed expense

54000

If the company stops manufacturing the component and buys the same from the market, the savings in departmental budget will be as under:

Direct Material

20%

Direct Labour

25%

Indirect labour

20%

Inspection and testing

25%

Power

25%

The purchase price of the component is Rs. 70 each.

Required:

i)State whether the company should make or buy the components.

ii)The company has received an offer for export of 12000 units at a price of Rs. 245 each. If the offer is accepted by the company, the capacity will be fully utilized and the components have to be purchased. Should the company then make or buy the component.