Ridewell Cycles Ltd. purchases 20,000 bells from an outside supplier at 5.00 each. The management feels that

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?