A firm can purchase a separate part from an

outside source @ Rs.11 per unit. There is a

proposal that the spare part be produced in thefactoryry itself. For this purpose a machine costing

Rs.1,00,000 with annual capacity of 20,000 units

and a life of 10 years will be required. A foreman

with a monthly salary of Rs.500 will have to be

engaged. Materials required will be Rs.4.00 per

unit and wages Rs.2.00 per unit. Variable

overheads are 150% of direct labour. The firm can

easily raise funds @ 10% p.a. Advise the firm

Whether the proposal should be accepted.