Answer to Question #233426 in Accounting for Owais

Question

Question No. 4
Pioner limited makes four component A, B, C and D for which cost in the forthcoming year are expected to be as follows:
A B C D
Production (units) 22,000 16,000 26,000 18,000
Rupees per unit
Direct material 32 28 36 40
Direct labour 30 28 32 28
Variable Overhead 6 8 4 4
68 64 72 72
A sub-contractor has offered to supply units of A, B, C and D for Rs. 75, Rs. 71, Rs. 73 and Rs. 65 respectively.
Required:
Which product should buy or make

Answer 1

Pioner ltd should make A, B and C Components and buy Item D from the sub-contractor. It is cheaper to make A, B and C than buying from the supplier. It is also cheaper to buy D than make it.