A Firm at Present Manufacturers All the Components That Go $\quad$

Multiple Choice

A firm at present manufacturers all the components that go to make up its finished products. A salesman from a component supplier has just offered to provide the firm’s requirements for two components, the JC 100 at £7.75 each and the JC 200 at £2 each. If the firm buys in the components the capacity utilised at present would be unused. The firm currently manufactures 50 000 units of each component and the current costs of production are as follows:

What is the extra cost (EC) or saving (S) per unit if the company decides to buy in the component:

JC 100 (£) $\quad$ JC 200 (£)

A) 2.25 (EC) $\quad$ 0.25 (S)
B) 1.25 (S) $\quad$ 2.00 (EC)
C) 1.75 (EC) $\quad$ 1.25 (S)
D) 2.00 (S) $\quad$ 1.00 (S)