The following costs and other data apply to two component parts used by Bajaj Electricals Ltd: The company hitherto has been manufacturing all its required components. However, in the current years,...

The following costs and other data apply to two component parts used by Bajaj Electricals Ltd:

The company hitherto has been manufacturing all its required components. However, in the current years, only 14,000 hours of otherwise idle machine time can be devoted to the production of components. Accordingly, some of the parts must be purchased from outside suppliers. In producing parts, overhead is applied at `40 per machine-hour. Fixed capacity costs, which will not be affected by any make or buy decision, represent 70 per cent of the applied overhead.

REQUIRED

1. Assuming that the 14,000 hours of available machine time are to be scheduled so that the company realises maximum potential cost savings, determine the relevant production cost that should be considered in the decision to schedule machine time.

2. Compute the number of units that Bajaj Electricals Ltd should produce if it allocates the machine time on the basis of the potential cost savings per machine-hour.