A B Direct wages 8 20 Problem 10.12 (Make or buy component-Second shift operation). Agrocaps Ltd. engaged in manufacturing agricultural machinery, is preparing its annual budget for the coming year. The company has a metal pressing capacity of 20,000 hours, which will be insufficient for manufacture of my requirements of components A, B, C and D. The company has the following choices : (i) Buy the components entirely from outside suppliers. (ii) Buy from outside suppliers and/or use a partial second shift. The data for the current year are given below: Standard production cost per unit Component C D Requirements in units 2,000 3,500 1,500 2,800 Variable Cost: Direct materials Rs. 37 Rs. 27 Rs. 25 Rs. 44 10 22 40 Direct expenses 10 10 60 Fixed overhead 4 _11 20 Total production cost 62 59 68 164 Direct expenses relate to the use of the metal presses which cost Rs. 10 per hour to operate. Fixed overheads are absorbed as a percentage of direct wages. Supply of all or any part of the total requirement can be obtained at the following prices, each delivered to the factory: Component Rs. Component Rs. 60 52 B 59 D 168 Second shift operations would increase direct wages by 25 percent over the normal shift and fixed overhead by Rs. 500 for each 1,000 (or part there of) second shift hours worked. You are required to present, with calculations: (a) Which component, and in what quantities should be manufactured in the 20,000 hours of press time available? shift basis instead of buying them from outside suppliers. (b) Whether it would be profitable to make any of the balance of components required on a second " 5