May 2021 Q5 a,b &c

Agrow Ltd is a community company that manufactures and sells car components; Wiper, Driving mirror and Brake pad. The budgeted information for the next year is expected to be as follow:

Direct labour is paid at GH¢12 per hour. While other production factors are unlimited. Labour is limited to 102,500 hours. Hence an extra component must be purchased from an external supplier.

Total fixed cost per annum is expected to be as follow:

An external supplier has offered to supply a unit of the following at their respective prices:
.                                                                GH¢
Wiper:                                                        32
Driving mirror:                                          24
Brake pad:                                                 23

Required:
a) Advise which of the products Agrow Ltd should make in-house or outsource. (7 marks)

b) Recommend the quantities that Agrow Ltd should make and the quantities it should buy externally to obtain the required quantities of all the parts and calculate the total annual cost.   (10 marks)

c) State THREE (3) factors to consider before setting a selling price of a product. (3 marks)