X Ltd can manufacture a part P for a sub-assembly Q. This can be done with the help of present equipment and there is the capacity to produce 1,000 units per month. Another company Y Ltd, the supplier of parts, agrees to supply that part for Rs. 23 each. Of the part that is bought, the equipment can be sold for Rs. 4,000. Evaluate whether to make or buy the part in the following year based on the following data:
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Buy Rs. |
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Direct material cost per unit |
3.75 |
– |
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Conversion cost per unit |
14 |
– |
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Specific fixed assets |
5,000 |
– |
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Average capital employed |
4,000 |
3,000 |
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(excluding stocks) |
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7,000 |
5,000 |
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