Question
Company A has to decide whether to manufacture Product X internally or to buy from outsiders at Rs.11. Annual demand of product X is 10,000.
Company A has to decide whether to manufacture Product X internally or to buy from outsiders at Rs.11. Annual demand of product X is 10,000. The details of Company A internal production costs are as follows: Rs. per unit Direct material2.00 Direct labour3.00 Variable production overhead0.50 Fixed production overhead (2 hours x 0.25 per hour)0.50 Fixed production overhead is calculated on the basis of 200,000 direct labour horus. 60% of fixed overhead is eliminated if company purchase from outsider. Company can produce 20,000 units of product Y if product X would be purchase from outsider and earned a contribution of Rs. 8 per unit. Company also rent their premises portion to other company at an annual rental of Rs.30,000 Required: Shoud Company manufacture product X internally or buy from outside supplier?(Marks 05)
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