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b. With reference to information given at Table 1 and the footnotes to the table, make an informed economic decision on whether Ohorongo Pty Ltd

b. With reference to information given at Table 1 and the footnotes to the table, make an informed economic decision on whether Ohorongo Pty Ltd should make the component or buy it from the market.

Per Unit Total
Direct Material N$10 N$60,000
Direct Labour 8 48,000
Applied Variable Factory Overhead 9 54,000
Applied Fixed Factory Overhead 12 72,000
N$1.5 per direct labour dollar
N$39 N$234,000

The same component can be purchased from market at a price of N$29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

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