Question 1 (10 marks; 18 minutes) Cambridge Engineering manufactures small engines. The engines are sold to manufacturers who install them in products such as weed-eaters. The organisation currently manufactures all the components used in these engines but is considering outsourcing the production of the engines' starter mechanisms. During the year just ended, 150 000 starters were produced at the following total cost: Direct materials Direct labour (variable) Manufacturing overhead Total cost R 215 000 200 000 600 000 1 015 000 Further analysis of manufacturing overhead revealed that only 30% is variable. Of the fixed portion, R220 000 is an allocation of general overhead that would remain unchanged for the organisation as a whole, if production of the starter mechanisms is discontinued. A further R160 000 of the fixed overhead is specific to the manufacture of starter mechanisms and would be avoided if the mechanism was bought externally. The balance of the fixed overhead is the salary of the technical manager who is responsible for starter mechanisms. He will be transferred to a new position in the organisation at the same salary, if production of the starter mechanisms is discontinued. This move will allow the organisation to save R50 000 salary per annum that would otherwise be paid to attract an outsider to this new position. 1.1 It has also been ascertained that if production of the starter mechanisms is discontinued, the plant space currently occupied could be used for storing other components and, in this way, R80 000 of outside storage costs could be avoided. Production volumes of starter mechanisms for the forthcoming year are expected to be the same as last year and no change in costs is anticipated in internal production continues. Oxford Electronics has offered to supply the starter mechanisms to Cambridge for the year ahead at a cost of R5 per unit. Cambridge would need to employ an additional materials handler at a cost of R3 000 per month to cope with the purchases from Oxford. Required: Calculate the total relevant cost of making and the total relevant cost of buying the starter mechanisms for the forthcoming year. (10)