Given : Forcasted demand 10,000 units per for 6 years
current manufacuring cost of 10,000 sub-assemblies per year:
materisals 450,000
direct labour 900,000
variable overheads 450,000
fixed overhead 1000,000
after 3 years material price will grow by 25% & labour rate by 10%.depreciation 400,000,eq. current book value=5400,000,straigit line method, current saling value 900,000,no resale value after 6 years. in case of purchase from out side 100,000. tax 35% miniimum ROR 15%. use NPV analysis ,determine whether it would be profitable to switch over from making sub-assemblies to buying the same from outside ?