Reference no: EM132541904

Costs to make one component:

£

Direct (Variable) Materials            £12

Direct (Variable) Labour                £22

Variable overhead costs                £13

Fixed costs                               £30

Total costs                                £77

Question 1: Licra has received a quote of £50 per unit from a potential supplier for 1,000 units of the component. If Licra buys 1,000 units of the component from the supplier, all costs will be eliminated apart from 60 percent of the fixed overhead costs that would continue. Given the scenario above, what should Licra do?

Option A. Buy the component and save £3,000

Option B. Make the component and save £3,000

Option C. Buy the component and save £27,000

Option D. Buy the component and save £9,000