Anna proposes to expand the range of sports equipment offered by Smart Sports. She would like to add hockey sticks, table-tennis bats, and cricket bats to the racquet collection. She is unsure whether it would be better to buy them in from another supplier or hire machines to make them themselves. She expects that the annual equipment hire will cost £5,000 to make hockey sticks, £9,000 to make table-tennis bats, and £8,000 to make cricket bats. Estimates for raw material and labour costs are set out in Table 14.3. Anna has quotations from other suppliers, should they choose to buy them in.

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Table 14.3 Sports equipment: make or buy decision Hockey Table-tennis Cricket bats sticks bats Sales demand per annum (units) 5,000 18,000 2,000 Sales price per unit 45 8 70 Bought-in price per unit 38 5 52 Raw materials per unit 22 2 32 Variable labour costs 10 0.50 18 per unit Overhead allocation per unit 4 4 4