Question: A business makes two components which it uses to produce one of its products. Details are: Component A Component B Per unit information: $ $

A business makes two components which it uses to produce one of its products. Details are:

Component A Component B

Per unit information: $ $

Buy in price 7 13

Material 1 3

Labour 3 4

Variable overheads 4 5

General fixed overheads 3 2

Total absorption cost 11 14

The business wishes to maximise contribution and is considering whether to continue making the components internally or buy in from outside.

Which components should the company buy in from outside in order to maximise its contribution?

A) Both A and B

B) Neither A nor B

C) A only

D) B only

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