Question 2 T plc manufactures 3 component AC1, FJ5 and P62. The following details relate to each of these items: P62 2,000 $ per unit 159.00 26.00 15.00 18.00 62.00 Production volume Selling price Material cost Direct labour Variable overheads Component (bought in price) Fixed Overhead costs: Avoidable Non-avoidable Total AC1 1,800 $ per unit 125.30 10.00 5.00 6.00 25.00 $ per annum 5,000 36,000 45,000 FJ5 1,800 $ per unit 146.00 15.00 10.00 12.00 38.00 (2/h6/01 16201) $ per annum 13,000 70,000 88,000 T plc has sufficient capacity to make the component itself. (b.) Which component (s) should be outsourced? Explain. nortas? Required (a.) What does it mean by relevant cost? Identify the relevant cost(s) that should be considered for outsourcing. (c.) Discuss the strengths and weaknesses of this method. $ per annum 22,000 160,000 200,000 (10 marks) (15 marks) (5 marks) (5) 5

Question 2 T ple manufactures 3 component AC1,F15 and P62. The following details relate to each of these items: T ple has sufficient capacity to make the component itself. Required (a.) What does it mean by relevant cost? Identify the relevant cost(s) that should be considered for outsourcing. (b.) Which component (s) should be outsourced? Explain. ( 10 marks) (15 marks) (c.) Discuss the strengths and weaknesses of this method. [5 marisis