Question

Prem Industry is considering making its own motor castings, which it currently purchases for ? 20.50 per unit. This purchase price does not include the ordering, receiving, and inspection costs, which Prem estimates to be ? 2 per unit. Prem feels that, it can manufacture the 6,500 required units at a lower cost than it pays by purchasing externally. The relevant costs for both the producing and buying alternatives are as follows: Incremental Analysis for Motor Castings ( 6,500 Units) \begin{tabular}{|l|r|r|r|} \hline \multicolumn{1}{|c|}{ Particulars } & Per Unit & Cost to Make & Cost to Buy \\ \hline Direct Materials & 6.25 & 40,625 & \\ \hline Direct Labour & 10.00 & 65,000 & \\ \hline Variable Factory Overhead & 5.00 & 32,500 & \\ \hline Purchase Price & 20.50 & & \( 1,33,250 \) \\ \hline Ordering, Receiving and Inspection Costs & 2.00 & & \( \underline{13,000} \) \\ \hline Total Relevant Costs & & \( \underline{1,38,125} \) & \( \underline{1,46,250} \) \\ \hline \end{tabular}

          Prem Industry is considering making its own motor castings, which it currently purchases for ? 20.50 per unit. This purchase price does not include the ordering, receiving, and inspection costs, which Prem estimates to be ? 2 per unit. Prem feels that, it can manufacture the 6,500 required units at a lower cost than it pays by purchasing externally. The relevant costs for both the producing and buying alternatives are as follows:
Incremental Analysis for Motor Castings ( 6,500 Units)
\begin{tabular}{|l|r|r|r|}
\hline \multicolumn{1}{|c|}{ Particulars } & Per Unit & Cost to Make & Cost to Buy \\
\hline Direct Materials & 6.25 & 40,625 & \\
\hline Direct Labour & 10.00 & 65,000 & \\
\hline Variable Factory Overhead & 5.00 & 32,500 & \\
\hline Purchase Price & 20.50 & & \( 1,33,250 \) \\
\hline Ordering, Receiving and Inspection Costs & 2.00 & & \( \underline{13,000} \) \\
\hline Total Relevant Costs & & \( \underline{1,38,125} \) & \( \underline{1,46,250} \) \\
\hline
\end{tabular}

Prem Industry is considering making its own motor castings, which it currently purchases for ? 20.50 per unit. This purchase price does not include the ordering, receiving, and inspection costs, which Prem estimates to be ? 2 per unit. Prem feels that, it can manufacture the 6,500 required units at a lower cost than it pays by purchasing externally. The relevant costs for both the producing and buying alternatives are as follows:
Incremental Analysis for Motor Castings ( 6,500 Units)

1|c| Particulars Per Unit Cost to Make Cost to Buy

Direct Materials 6.25 40,625

Direct Labour 10.00 65,000

Variable Factory Overhead 5.00 32,500

Purchase Price 20.50 1,33,250

Ordering, Receiving and Inspection Costs 2.00 13,000

Total Relevant Costs 1,38,125 1,46,250

Added by Jes-S C.

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