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ABC Co Ltd has two divisions Relay Division (RD) and Motor Division (MD). Other information given is - RD - It can manufacture 50,000 Relays
ABC Co Ltd has two divisions Relay Division (RD) and Motor Division (MD). Other information given is - RD - It can manufacture 50,000 Relays (a kind of switch) per year at a variable cost of Rs, 12 per unit and selling price is Rs. 20 per unit. Each relay requires one labour hour to complete MD - It has developed a new model of Motor for which a new model of Relay is required. There are two options to procure this new model of Relay: a. To buy from an external supplier \& Rs 15 per unit (Annual requirement 50,000 units) b. To be manufactured by RD which has to give up its entire present business. The variable cost of manufacturing a new model is Rs. 10 per unit. The MD also has to incur Rs.25 as variable cost and the selling price per unit is Rs. 60 . Advise whether the RD should give up its existence business to manufacture a new model of relay for MD OR The latter should procure the new model from the market
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