Problem 10.4 (Make or Buy). Household Equipments Ltd. is producing a kitchen equipment from five components, three of which are made using general-purpose machines and two by manual labour. The data for the manufacture of the equipment is as follows: Components B D E Total Machines hours reqd. per unit 10 14 12 36 Labour hours reqd. per unit 2 1 3 Variable cost per unit (in rupees) 32 54 58 12 4 160 Fixed cost per unit (apportioned) 48 102 116 24 26 316 Total component cost 80 156 174 36 30 476 Assembly cost/unit (all variable) Rs. 40 Selling price/unit Rs. 600 The marketing department of the company anticipates 50% increase in demand during the next period. General purpose machinery used to manufacture A, B and C is already working to the maximum capacity of 4,752 hours and there is no possibility of increasing this capacity during the next period. But labour available for making components D and E and also for assembly according to demand. The management is considering the purchase of one of the components A, B or C from the market to meet the increase in demand. These components are available in the market at the following prices : Components A Rs. 80 Components B Rs. 160 Components C Rs. 125 Required: (a) Profit made by the company from current operations. (6) If the company buys any one of the components A, B or C, what is the extent of additional capacity that can be created ? (c) Assuming 50% increase in demand during the next period, which component should the company buy from the market? (d) The increase in profit, if any, if the component suggested in (c) is purchased from the market