Ridewell Cycles Ltd. purchases 20,000 bells from an outside supplier at 5.00 each. The management feels that these be manufactured and not purchased. A machine costing 50,000 will be required to manufacture the item within the factory. The machine has an annual capacity of 30,000 units and life of 5 years. The following additional information are available: Material cost per

Ridewell Cycles Ltd. purchases 20,000 bells from an outside supplier at ȼ5.00 each. The management feels that these be manufactured and not purchased. A machine costing ȼ50,000 will be required to manufacture the item within the factory. The machine has an annual capacity of 30,000 units and life of 5 years. The following additional information are available:

            Material cost per bell will be                          ȼ2.00

            Labour cost                                                     ȼ1.00

            Variable overheads                                         100% of labour cost.

Required: Advise management whether:

                        (i) the company should continue to purchase the bells from the outside supplier or

    should make them in the factory; and                                            

(ii) the company should accept an order to supply 5,000 bells to the market at a

      selling price of ȼ4.50 per unit?                                                      

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