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A Manufacturer of motorcycles buys spark plugs at Rs.15 each. Now he wishes to manufacture the plugs in his own factory. The estimated cost for the manufacture of spark plugs is around Rs.50,000=00 and the variable cost comes to Rs.5 per spark plug. The Production Manager advises the Manufacturer that the factory should go for manufacturing instead of procuring them from the open market.
List out reasons for the decision of the Production Manager backed up by the necessary data.
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a) spark plug consumption unit 5000 both buy and production cost same .
Buy :- 5000*15 = 75000
Production :- 25000 ( 5000*5 ) +50000 = 75000
b) consumption less than 5000 buys is profitable.
Buys :- 4000*15 = 60000
Production :- 20000 ( 4000*5 ) + 50000 = 70000
c) consumption more than 5000 production is profitable.
Buys :- 6000*15 = 90000
Production :- 30000 ( 6000*5 ) + 50000 = 80000
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