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diwana ltd manufactures automobile accessories and parts 608268

Diwana Ltd manufactures automobile accessories and parts. The following are the total costs and also the unit costs of processing a component, DIL-2010:

Total Cost for 1,00,000 units

Per unit Cost

Direct Material

5,00,000

5

Direct Labour

8,00,000

8

Variable Factory Overheads

6,00,000

6

Fixed Factory Overheads

5,00,000

5

24,00,000

24

Another manufacturer has offered to sell the same part to Diwana Ltd for Rs. 22 each.

The fixed overheads would continue to be incurred even when the component is bought out, although there would be a reduction to the extent to Rs. 1,50,000 following the savings in the salaries of supervisory personnel that could be avoided if the company opts to ‘buy’ rather than ‘make.’

  1. Should the part be made or bought considering that the present facility when released following a buying decision would remain idle?
  2. In case the released facility can be rented to another manufacturer for Rs. 50,000, as there is a good demand for spare facility, what would be the position?

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