PEL makes two components, X and Y, for which expected costs are as follows: Y Production...

 

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PEL makes two components, X and Y, for which expected costs are as follows: Y Production in units Variable cost per unit: Direct Material Direct Labout Variable Factory overhead 1 Total variable cost 30,000 | 20,000 Rs. Rs. 6 3 3 10 17 Direct labour is paid Rs.12 per hour. There will be only 19,500 hours of direct labour time available next year, and any additional components must be purchased from an extemal supplier. Total fixed costs per annum are expected to be as follows: Rs. Incurred for Product X 40,000 Incurred for Product Y 50,000 30,000 120.000 Other fixed costs An external supplier has offered to supply units of X for Rs.12.50 and units of Y for Rs. 23. Required 1. Recommend whether PEL should shut down intenal production of Component X or Component Y and switch to external purchasing. 2. Recommend the quantities that PELshould make of the components, and the quantities that it should buy extermally, in order to obtain the required quantities of both components at the minimum cost. Calculate what the total annual cost will be. Note. To answer part (b), you will need to consider that labour is a limiting factor. PEL makes two components, X and Y, for which expected costs are as follows: Y Production in units Variable cost per unit: Direct Material Direct Labout Variable Factory overhead 1 Total variable cost 30,000 | 20,000 Rs. Rs. 6 3 3 10 17 Direct labour is paid Rs.12 per hour. There will be only 19,500 hours of direct labour time available next year, and any additional components must be purchased from an extemal supplier. Total fixed costs per annum are expected to be as follows: Rs. Incurred for Product X 40,000 Incurred for Product Y 50,000 30,000 120.000 Other fixed costs An external supplier has offered to supply units of X for Rs.12.50 and units of Y for Rs. 23. Required 1. Recommend whether PEL should shut down intenal production of Component X or Component Y and switch to external purchasing. 2. Recommend the quantities that PELshould make of the components, and the quantities that it should buy extermally, in order to obtain the required quantities of both components at the minimum cost. Calculate what the total annual cost will be. Note. To answer part (b), you will need to consider that labour is a limiting factor.

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ANSWER Ans 1 WHICH PRODUCT SHOULD BE PURCHASED EXTERNALLY X Y VARIABLE PRODUCTION COST DIRECT MATERI... View the full answer