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The production manager has put up a He had suggested that the company would make profit and save taxes on bought out switch. The co department was asked to make an estimate of making the item which showed that the cost of making was The purchase department continues buying the item on the basis of the cost estimate given to them. Rece the Vendor has sent a letter requesting the purchase department to grant increase in price of 10% minimun switch as the input costs had gone up. The costing department was once again requested to estimate co making the switch. a The costing department re-estimated the costs using current prices and observed that the cost of making gone up to 25.33. Purchase department again decided to continue buying as it was cheaper to buy than m The cost estimate prepared by the costing department was as under: Annual costs Previous (5) Current R) 40,000 48,000 20,000 22,000 Direct Materials Direct Labour 32 per hour lustrofion 42. (Relevant Cost) Cholera Ltd, manufactures Mixer Grinders. The manufacture involves an assembly of various parts which are rceeds in the machine shop and purchased components. The on/off switch is presently being purchased form vendor at 4.50 each, annual requirement being 20,000 pieces. The production manager has put up a proposal two months back to make the switch in the machine shop He had suggested that the company would make profit and save taxes on bought out switch. The costing department was asked to make an estimate of making the item which showed that the cost of making was 4.73 The purchase department continues buying the item on the basis of the cost estimate given to them. Recently the vendor has sent a letter requesting the purchase department to grant increase in price of 10% minimum pe siitch as the input costs had gone up. The costing department was once again requested to estimate costo 30,000 31,500 90,000 1,01,500 5,075 4,500 overheads at 3 per hour Total cost at current price Add: expected increase 5% Expected manufacturing cost Cost per price 94,500 4.73 1,06.575 5.33 3 wenty-five per cent of the overheads are fixed. quired: Do you agree with the decision of buying considering the relevant costs? If the cost of making more or less same, what factors other than cost will influence making decision? er hour 30,000 31,500 t price 90,000 1,01,500 ease 5% 4,500 5,075 turing cost 94,500 1,06.575 4.73 5.33 3 of the overheads are fixed. ee with the decision of buying considering the relevant costs? If the cost of making or buying vhat factors other than cost will influence making decision