Suppose you have recently been contracted as a financial consultant to aLondon-based engineering company, Alpha Products Plc. The company usesthree components as part of their production process, namely, A, B and C.The budgeted production output for the forthcoming year is to produce10,000 of each of the three components.

The variable production cost per unit of the final product is as follows:

Machine HourVariable cost

1 Unit of A665

1 Unit of B490

1 Unit of C860

Assembly50

Total265

Only 112,000 hours of machine time will be available during the year, and asub-contractor has quoted the following unit prices for supplying the threecomponents: A A??L72.50; B A??L100 and C A??L88.

(a) Using the above financial data provide calculations which support youradvice to the company on whether it should produce the three componentsor outsource them.(b) Explain the use of the principle of opportunity cost and why costminimisationand profit maximisation are compatible concepts and include atable showing the total variable cost of your selected production or purchasingplan.