Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialized country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.

Drug	Fairyoxide	Spriteolite	Goblins
Production	20,000	40,000	80,000
$	$	$
Direct material cost, per unit	0.80	1.00	0.40
Direct labour cost, per unit	1.6	1.80	0.80
Direct expense cost, per unit	0.40	0.60	0.20
Fixed cost per unit	0.80	1.00	0.40
Selling price each	4.00	5.00	2.00
Imported price	2.75	4.20	2.00

Instructions:

1. What profit will the company make by producing all the drugs itself?
2. What saving/ (increased cost) per unit would be made/(incurred) if Fairyoxide was purchased from the overseas producer (to two decimal places)?
3. What saving/ (increased cost) would be made/(incurred) per unit if Spriteolite was purchased from the overseas producer?
4. What saving/ (increased cost) would be made/(incurred) if Goblinex was purchased from the overseas producer?

Answer rating: 100% (QA)

Drug Fairyoxide Spriteolite Goblins Total Direct material cost per unit 080 100 040 Direct labour co... View the full answer