ToozeTooze

Limited manufactures air conditioning units. It needs Component A for one of its products, and can either manufacture them internally for variable costs of

281281

each, or buy them in completed for

337337

each.

Required:

1. Should

ToozeTooze

Limited manufacture or buy in Component A, assuming

ToozeTooze

Limited has spare manufacturing capacity?2. If

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Limited did not have spare manufacturing capacity, but could only manufacture Component A by reducing output of Component B (each one of which currently contributes

7676),

should

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Limited manufacture or buy Component A?

(Enter your answers as integers.)

Requirement 1

Variable costs to manufacture Component A are

greater than

less than

the cost of buying in completed Component As by

nothing.

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Limited should therefore

manufacture the component

buy in the component

.

Requirement 2

If

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Limited did not have spare capacity, the relevant cost of each Component A would be:

Variable cost of manufacturing Component A
Opportunity cost of lost production of Component B
Total relevant cost of internal production

The relevant costs of manufacturing Component A are

greater than

less than

the cost of buying in completed Component As by

nothing.

ToozeTooze

Limited should therefore

manufacture the component

buy in the component

.