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A radio
manufacturing
make component R 608, the
co. finds that while it costs Rs. 6.25 to
same is available in the market at Rs. 5.75
** * ********
** ********* **** ** **|

with each,
an assurance of continued supply. The break-down of
****** * ****** **
the' cost is:
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Rs.
Materials 2.75 each
**************
Labour
1.75 each
Other variables 0.50 each
Depreciation and other fixed costs
******
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1.25 each
(i) Should you make or buy ?
6.25
-******** ********************************* (ii) What would be your decision, if the
component at Rs. 4.85 each ? supplier offered the
 Manufacture of product A takes 20 hours on machine No. 101. It has a selling price of Rs. 150 and
marginal cost of Rs. 110. Component part Ycould be made on machine No. 101 in 4 hours. The marginal
cost of coiponent part is Rs. 9 óf which outside supplier's price is Rs. 15.
Should oe inake ór buy component Y. Discuss 'in' both situations when
(a) Machine No. 101 is working at full capacity.
(6) There is idle capacity.

100 and marginal cost of

3 Product takes 20 hours to process on machine 99. It has a sellingg price of Rs. cost of
could be made on machine 99 in 3 hours for a marginal
Rs. 60. Y (a component part used in production)
one make or buy Y? Discuss in both
situations (i) when machine
Rs. 5. The supplier's price is Rs. 10. Should
there is idle capacity.
99 is working at full capacity and (ii) when
What are other non-cost considerations to
be kept in mind in such cases?

XY Ltd manufactures auto parts. The following costs are incurred for processing 1,00,000 units of a
component
Direct material cost Rs. 5 lakhs
Direct labour cost Rs. 8 lakhs
Variable factory overhead Rs. 6 lakhs
. Fixed factory overhead Rs. 5 lakhs.
The purchase price of the component is Rs. 22. The fixed overhead would continue to be incurred even
when the component is bought from outside although there would be reduction to the extent of Rs. 2,00,000.
Required:
(1)Should the' part be made or bought, considering 'that the' present facility when released foliowing a
buying decision would remain idle?
(2) In case the released capacity can be, rented out.to anpther company for Rs. 1,50,000, what would be the
decision7
1 Auto Parts Ltd. has an annual production of 90,000 units for a motor component. The component cost
structure is as below: Rs.
Materials 270 per unit
Labour (25% fixed) 180 per unit

Expenses
Variable 90 per unit
Fixed 13S per unit
Total 67S per unit

(a) The purchase manager has an offer from a supplier who is willing to supply the component at Rs. 540.
Should the component be purchased and production stopped?
(6) Assume the resources now used for this component's manufacture are to be used to produce another
new product for which the selling price is Rs. 485.
In the latter case, the material price will be Rs. 200 per unit. 90,00Q units of this product can be produced
at the same cost basis as above for labour and expenses. Discuss whether it would be advisable to divert the
resourees to manufacture that new product, on the footing that the component presently being produced would

instead of produced, be purchased form the market.

being
 2 . A B C Ltd. is producing 10,000 units of a components at an average cost of Rs. 40 per unit including fixed
from outside at Rs. 28 per unit. Should ABC Ltd. continue
cost of Rs.1,50,000. components
The can be
purchased
producing the component or buy is from outside?
70 per unit including semi
DK Ltd. is producing 30,000 units of component X at an average cost of Rs.
3 costs are variable and the
rest are fixed. Component
X can be
variable cost of Rs. 20 per unit. 40% of semi-variable
can be used for producing 10,000
a case the vacated capacity
purchased from outside at a price of Rs. 65 per unit. In such
additional fixed cost of Rs. 1,00,000.
Product Y cen be sold
units of product Y. at a variable cost of Rs. 25 per unit and an instead?
at Rs. 55 per unit. Should DK. Ltd. continue producing
X or buy X from outside and produce Y

Ca PLLid. is producing 25,000 units of a component ata cost of Rs. 50 perunit. Fixed costat this level of
output is Rs. 10 per unit. 40% of fixed cost is aviodable. PL Ltd. can buy the component from outside at Rs. 42 per unit.
Should he produce or buy?
-
.
: A manufacturing company finds that while it costs Rs. 625 to make each component X, the same is
available in the market at Rs. 485 each, with an' assurance of continued supply. The breakedown ofcost is
Materials Rs. 275; labour Rs. 175; other variable costs Rs. 50; Depreciation and other fixed costs Rs. 125. Should you
make or buy?
(materials) in manufacturing its primary product
Ce Stoner company uses different components
three
components and purchased one (designated as component I) from outside suppliers. The
Stoner manufactures twq of the 2 cannot be acquired from
is currently developing the annual profit plan. Sales are highly seasonal. Component
company have critical specifications. The annual profít plan
outsiders; however components 3 can be purchased. These components
provided data for the following computations Components 3
(Unit Cost at 12,000 units)
Rs. 1.40
Material (direct) 2.20
Labour (direct) 0.40
Fixed overbeads (apportioned)
Anniual machine rental (special machine used only for component 3) 0.50
1.00
Variable factory overheads
0.40
Average storáge cost per year (fixed) 5.90
Total
Average inventory level 500 units
to deliver
The purchase manager investigated outside suppliers and found one that would sign a one year contract
to this
"12,000 top quality units as needed during the year at Rs. 5.20 per unit". Serious condideration is being given
decision.
alternative. Should stoner make or buy component 37 Explain the relevant factors infuencing your
AutoParts Ltd. has an annual production of90,000 units for á motor compoment. The components cost
structure is givenbelow:
Rs. Per unit Rs. Per unit
Materials 270 Expenses: Variable 90
Labour (25% fixed) 180 Fixed 135
(a)Thepurehase manager hás on offer from a supplier who iswilling to supply the component at Rs. S40. Should the
component be purchased and production stopped ?
(b) Assume the resoures now used för this component manufacturing are to be used to produce anothe.new product
for which the selling price is Rs. 485.
fn the lattercasematerialprice will be Rs. 200 per unit. 90,000 units of this product can be produced at the same cost
basis as above for labour and expenses. Discuss whether it would be advisable to diverttheresourçes to manufacture that
aew product, on the footing thatthe component presently being prpduced would, instead ofbeing produced, be parchased
fromthe market."