Problem 2 the Cost of Making Component Q Which Forms Part of Part

Essay

Problem 2
The cost of making component Q which forms part of product Y is stated as follows:
£
Raw material 4.00
Direct labour 8.00
Variable overhead 6.40
Fixed overhead 9.60
Total absorption cost per unit 28.00
Component Q could be brought from an outside supplier for 20.
b) You are required, assuming that fixed production costs will not change to state whether the company should continue making the component Q or buy it from outside. Explain the costs you use and your reasoning.