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P is considering whether to continue making a component or to buy it from an outside supplier. It uses12000 of components each year
The internal manufacturing cost consist
$ per unit
DM 3
DL 4
VOH 1
Specific FC 2.5
other FC 2If DL were not used to manufacture the component it would be used to increase production of another item for which there is unlimited demand. This other item has contribution of $10 per unit but requires $8 of labour per unit.
What is max price per component, at which buying is preferable to internal manufacture
Here in solution, direct labour they have taken $9 i.e ( 10/2 + 4). Sir here how they have taken contribution forgone 10/2 ?
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