Sally Limited manufactures types of household components: W, X, Y and Z. Demand and costs per unit in the coming period are estimated to be as follows: Household Component w X Y z Demand (units) 10 000 50 000 120 000 60 000 Unit variable costs: R per unit R per unit R per unit R per unit Direct labour (R4 per hour) 4 6 8 6 Direct material 2 5 2 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 labours and represent apportioned general factory overheads. The direct labour used to build the household components is highly skilled and Sally Limited sometimes has difficulties in recruitment, resulting in shortages of labour. Due to rapid technological change, inventories of completed household components are not carried. The finance director of Sally Limited considers the cost of the household components to be too high and is considering subcontracting their manufacture. A supplier has offered to supply any quantity of W, X, Y and Z at R10, R16, R13 and R25 per unit, respectively. Sally Limited seeks to satisfy demand at the lowest cost. Required: Based on the above, should Sally Limited manufacture the household components or buy it from the supplier ? Explain briefly any non financial factors that should be considered before a final decision is taken. Page