2. 2. In (c) (ii), assume that the company could produce 1,000 units of product B using the machine hours to be released from product A if it is outsourced. Product B can be sold at £100 per unit, and the total variable costs needed to produce it is the same as product A. Indicate if the company should make or buy product A based on the revised monetary difference of the two options

3. 3. XYZ Ltd. has been evaluating whether it will continue to manufacture product A in house or outsource it. The unit cost of producing product A is as follows:

   Direct materials £10 Direct labour £5 Variable manufacturing £15 overhead

   Fixed manufacturing overhead £50 Total £80

   The lease payment for machinery (i.e., fixed cost), which is needed to produce product A internally, is £5,000 per annum and cannot be cancelled. The company produces and sells 4,200 units of product A per year. After an overseas supplier submitted a bid of £32 per the same product, some management members felt that they could reduce costs by outsourcing the production of product A. If product A is purchased from the supplier, its unused factory space could be leased to another company for £1,000 per year.

Answer rating: 100% (QA)

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