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XYZ Company manufactures and sells 3 components, viz. component X, component Y and component Z. The Purchasing Manager has been asked to investigate the prices
XYZ Company manufactures and sells 3 components, viz. component X, component Y and component Z. The Purchasing Manager has been asked to investigate the prices of an overseas producer. The following cost and price information is related to component X, component Y and component Z. Component Production (units) Direct material cost, per unit Direct labour cost, per unit Fixed cost, per unit Selling price each Imported price each X 25,000 $ 0.80 1.60 0.80 4.00 2.35 Y 40,000 $ 1.00 1.80 1.00 5.00 3.60 Z 75,000 $ 0.40 0.80 0.40 2.00 1.80 Required: a) Should XYZ Company make or buy component X, Y and Z? Show all workings. b) Show the profit figure the company will make by producing all the components itself. c) Describe some qualitative factors that may be relevant to an outsourcing decision
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