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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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