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worthwhile to illustration 42. (Relevant Cost) Chakra Ltd. manufactures Mixer Grinders. The manufacture involves an assembly of various parts which are proceeds in the machine shop and purchased components. The on/off switch is presently being purchased for a 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 per switch as the input costs had gone up. The costing department was once again requested to estimate cost o making the switch The costing department re-estimated the costs using current prices and observed that the cost of making ha gone up to 25.33. Purchase department again decided to continue buying as it was cheaper to buy than make The cost estimate prepared by the costing department was as under: Annual costs Previous () Current R) 40,000 48,000 20,000 Direct Materials Direct Labour 2 per hour 22.000 overheads of 33 per hour Total cost at current price 30,000 31.500 90.000 1.01,500 Add expected increase 5% 4,500 5,075 Bpected manufacturing cost 94,500 1.06.575 Cost per price 4.73 5.33 Twenty-five per cent of the overheads are fixed. 3 Required: Do you agree with the decision of buying considering the relevant costs? If the cost of making or buying is more or less same, what factors other than cost will influence making decision