Answer all subparts and give answer in details

Assignment question 1 - 20 Marks The management of Bolton 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: Direct material 14 Direct labour (4 hours at 3 per hour) 12 Variable overhead (4 hours at 2 per hour) 8 Fixed overhead (4 hours at 5 per hour) 20 Total cost 54 per unit Leeds plc has offered to supply the above component at a guaranteed price of 50 per unit. Required: (a) Considering cost criteria only, advise management whether the above component should be purchased from Leeds plc. Any calculations should be shown and assumptions made, or aspects which may require further investigation should be clearly stated. (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 Bolton plc continues to manufacture this component the company will incur additional fixed inspection and testing expenses of 56,000 per annum, which are not included in the above budgeted manufacturing costs. (ii) Additional labous cannot be recruited and if the above component is not manufactured by Bolton plc the direct labour released will be employed in increasing the production of an existing product which is sold for 90 and which has a budgeted manufacturing cost as follows: Direct material 10 24 Direct labour (8 hours at 3 per hour) Variable overhead (8 hours at 2 per hour) 16 Fixed overhead (8 hours at 5 per hour) 40 90 per unit (c) The production director of Bolton Plc recently said: "We must continue to manufacture the component as only one year ago we purchased some special grinding equipment to be used exclusively by this component. The equipment cost 100,000, it cannot be resold or used elsewhere and if we cease production of this component we will have to write off the written down value which is 80,000". Draft a brief reply to the production director commenting on his statement