11. Alfa manufacturing company has sufficient idle capacity therefore, it would like to see the possibility of manufactu

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11 Alfa Manufacturing Company Has Sufficient Idle Capacity Therefore It Would Like To See The Possibility Of Manufactu 1 (37.88 KiB) Viewed 32 times

11. Alfa manufacturing company has sufficient idle capacity therefore, it would like to see the possibility of manufacturing a component used in its final products. The company has been buying the component from the outside supplier at the rate of Rs 40 per unit. The other data have been given below: Annual needed Estimated cost for one unit of output: Direct material Direct labour cost 40,000 units Rs 12 Rs 16 Rs 20 Manufacturing overheads The company has followed a system of defining its plant capacity in terms of direct labour hours. The normal capacity is 100,000 DLH. The annual budgeted fixed manufacturing overhead is Rs 400,000. One unit of output requires two DLH. Required: Differential cost analysis to decide whether the company should continue to buy the component?