Numerical on Make or Buy decision

Q.  Product X is manufactured By ABC company, The sales is Rs 50,000 Direct Materials is Rs 20,000, Direct Labour is Rs 10,000, Variable overheads is Rs 5,000 and Fixed overheads is Rs 10,000. ABC Company now intends to introduce a new product Y so that sales may be increased by Rs 10,000. There will be no rise in fixed costs and the estimated variable costs of Product Y are Labour Rs 2,200 Materials Rs 4,800 Overheads Rs 1,400. If the company introduces Product Y, what will be the impact?
- Published on 09 Sep 15

a. Total profit will decrease by Rs 1,600
b. Total profit will increase by Rs 1,600
c. No impact
d. None of the above

ANSWER: Total profit will increase by Rs 1,600

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