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One of the divisions within Rhine Autos is currently negotiating with another supplier regarding outsourcing component A that it manufactures. The division currently manufactures 10,000 units per annum of the component.
The costs currently assigned to the components are as follows:
Total costs of Producing 10,000 Components(Rs)
Direct materials 120,000
Direct labour 100,000
Variable manufacturing overhead costs 10,000
Fixed manufacturing overhead costs 80,000
Share of non-manufacturing overheads 50,000
Total costs 360,000
Required:
Question 1: Should the Division of Rhine Autos make or buy the component?
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