Aileen Co manufactures two components, L and M. Both components are manufactured on the machine ZX.The following cost information per unit of L and M is available:Direct materialDirect labourVariable overheadFixed overheadTotal costL M($) ($)12182515876461055Component L requires three hours on machine ZX and component M requires five hours. Manufacturing requirements show a need for 1,500 units of each component per week. The maximumnumber of machine ZX hours available per week is 10,000.An external supplier has offered to supply Aileen Co with the components for a price of $57 per component L and $55 per component M.Identify, by clicking on the relevant boxes in the table below, whether each of the following statements are true or false.would be cheaper for Aileen Co toproduce all the components in-house if thehours on machine ZX were availableAileen Co should purchase 400 units ofcomponent M from the external supplierTRUETRUEFALSEFALSE

Make or buy decisions involve the decisions regarding whether the product should be manufactured…

Answered: Identify, by clicking on the relevant…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Aileen Co manufactures two components, L and M. Both components are manufactured on the machine ZX.
The following cost information per unit of L and M is available:
Direct material
Direct labour
Variable overhead
Fixed overhead
Total cost
L M
($) ($)
12
18
25
15
8
7
6
46
10
55
Component L requires three hours on machine ZX and component M requires five hours. Manufacturing requirements show a need for 1,500 units of each component per week. The maximum
number of machine ZX hours available per week is 10,000.
An external supplier has offered to supply Aileen Co with the components for a price of $57 per component L and $55 per component M.
Identify, by clicking on the relevant boxes in the table below, whether each of the following statements are true or false.
would be cheaper for Aileen Co to
produce all the components in-house if the
hours on machine ZX were available
Aileen Co should purchase 400 units of
component M from the external supplier
TRUE
TRUE
FALSE
FALSE

Expert Solution

Step 1: Make or Buy decision

Make or buy decisions involve the decisions regarding whether the product should be manufactured in-house or purchased from the outside market.
Sometimes same goods are available in the market at cheaper prices and in good quality, so it will be beneficial for the company to purchase the goods from the outside.
But sometimes, due to large scale of production or due to specialization in production or due to other factors, it becomes cheaper to produce the goods in-house.

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