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MAKE OR BUY DECISION (26-02-2018)-1.docx - MAKE OR BUY...

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MAKE OR BUY DECISION:QUESTION IMalicious Limited is a research based company which manufactures a wide variety of drugs foruse in hospitals. The purchasing manager has recently been approached by a new manufacturerbased in a newly industrialized country who has offered to produce three of the drugs andsupplied to malicious Limited. The following cost and price information has been provided.Themanagement of the company is not very certain about the quality of the drug to be manufacturedby the new firm, but has resolved to compare the price of making the drug in-house and oneoffered by the new manufacturer. Details of the drugs are provided below:DRUGSLAZIVOProduction (Units)20,00040,00080,000Cost CardGHGHGHDirect Material cost per unit0.801.000.40Direct Labour cost per unit1.601.800.80Direct Expense cost per unit0.400.600.20Fixed cost per unit0.801.000.40Selling Price per units4.005.002.00Imported price2.754.202.00REQUIREDa)Calculate the profit figure the company will make by producing the three drugs using itsown resources in houseb)Using cost basis only, recommends to the management of Malicious Limited whether anydrug should be purchased from the industrialized manufacturerc)How will your recommendation in (b) above affect the profit and by how muchd)Explain any other factors to be considered by the management beforebuyinge)Discuss the factors that had led to the growth of outsourcing

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