A department makes a product whose contribution per unit is £1,200 and which takes 60 hours of machine times. A component used in this product incurs a marginal cost of £250 (taking 8 hours of machine time). The department is working at full capacity. An external supplier has offered to supply the component at a price of £400 per component. What is your advice to the department? Make the component in house or buy it from the external supplier. Explain your answer. Show all calculations.
A department makes a product whose contribution per unit is £1,200 and which takes 60 hours of machine times. A component used in this product incurs a marginal cost of £250 (taking 8 hours of machine time). The department is working at full capacity. An external supplier has offered to supply the component at a price of £400 per component. What is your advice to the department? Make the component in house or buy it from the external supplier. Explain your answer. Show all calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A department makes a product whose contribution per unit is £1,200 and which takes 60 hours of machine times. A component used in this product incurs a marginal cost of £250 (taking 8 hours of machine time). The department is working at full capacity. An external supplier has offered to supply the component at a price of £400 per component. What is your advice to the department? Make the component in house or buy it from the external supplier. Explain your answer. Show all calculations.
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