Gerond Ltd has developed a new product ‘Q' and is deciding whether to ‘outsource' it (get it made outside) or to make it themselves. It is a key product in their new range.
It has researched the figures and using these and the company's overhead absorption rates has calculated the absorption production cost as follows. It has also obtained a quote for making it from a firm in the same industry sector
Costs of Manufacture Buy in Cost
Direct Mats 4
Direct Labour 6
Variable Overheads 3
Fixed Overheads 7
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Absorption Cost £20 Price to Buy £15
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Should it buy or make it on the grounds of:
1 Cost only?
2 Taking other factors into account

Question

Quizplus · Accepted Answer

The Answer of Gerond Ltd has developed a new product ‘Q' and is deciding whether to ‘outsource' it (get it made outside) or to make it themselves. It is a key product in their new range.
It has researched the figures and using these and the company's overhead absorption rates has calculated the absorption production cost as follows. It has also obtained a quote for making it from a firm in the same industry sector
Costs of Manufacture Buy in Cost
Direct Mats 4
Direct Labour 6
Variable Overheads 3
Fixed Overheads 7
---
Absorption Cost £20 Price to Buy £15
--- ---
Should it buy or make it on the grounds of:
1 Cost only?
2 Taking other factors into account

Gerond Ltd Has Developed a New Product ‘Q' and Is