Numerical on Make or Buy decision

Q.  A company is producing product T on a machine. The selling price of T is Rs 100, marginal cost is Rs 60 and machine takes 20 hours to produce T. The company uses a component H which can be made on same machine in 3 hours for a marginal cost of Rs 5. Component can also be bought from the market for Rs 10. What will be the final result if the company decides to by component H from market? (Machine is fully utilized)
- Published on 04 Sep 15

a. Savings of Rs 1
b. Loss of Rs 5
c. Loss of Rs 1
d. Savings of Rs 5

ANSWER: Savings of Rs 1

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