:Proton Electronic Ltd (PEL) makes four types of electronic components: A-1, B-1, C-1, D-1.

Demand and costs per unit in the coming period are estimated to be as follows:

Electronic Components	A-1	B-1	C-1	D-1
Demand	10,000	50,000	120,000	60,000
Unit Variable Cost	$per unit	$per unit	$per unit	$per unit
Direct Labour ($4 per hour)	4	6	8	6
Direct material	2	5	5	11
Variable overhead	2	3	4	3
Total variable cost per unit	8	14	14	20
Absorbed fixed overhead	8	12	16	12
Total production cost	16	26	30	32

Fixed overheads are absorbed on the basis of direct labour hours and represent apportioned general factory overhead.

The direct labour used to build the electronic components is highly skilled and PEL sometimes has difficulties in recruitment, resulting in shortage of labour. Due to rapid technological change stocks of completed electronic components are never carried.

The finance director of PEL considers the cost of the electronic components to be too high and is considering subcontracting their manufacture. A supplier has offered to supply any quantity of A-1, B-1, C-1, D-1 for $10, $16, $13, $25 per unit respectively.

PEL seeks to satisfy demand at minumun cost.

REQUIRED:

a) On a purely financial basis, determine how many of each type of electronic components should be made by PEL and how many should be bought in from the supplier, if PEL expects direct labour hours in the coming period to be:

(i) In unlimited supply;

(ii) Restricted to 145,000 hours.

B) The finance directore of PEL is also considering a cost reduction campaign to reduce the cost of the four types of electronic components.

Describe the actions (other than subcontracting manufacture) the company could take to reduce the cost of the sub-assemblies.