A Firm may purchase a separate component from an outside agency at a price of Rs 11 per unit. There is a proposal that the spare part be produced in the factory itself. For this purpose a small machine costing Rs 10 lakhs with annual capacity of manufacturing 3 lakhs units and life 5 years would be required to be purchased by taking a loan at an interest rate of 8% per annum. A supervisor with a monthly salary of Rs 15000 would have to be engaged as well for supervising the operation of this particular machine. Materials required for such in house production would be Rs 4 per unit, Wages Rs 2 per unit and Variable Overhead Rs 3 per unit. Advice the company as to whether the proposal is acceptable or not and under what circumstances? It may please be noted that the annual demand of this component would never exceed 3 lakhs units.