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12 BioMix Ltd. currently makes 10,000 units of a component part for inclusion in its...

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Accounting

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12 BioMix Ltd. currently makes 10,000 units of a component part for inclusion in its finished product, incurring the following costs per unit: Direct Materials $5 Direct Labour 23 Variable Overhead Fixed Overhead Applied 15 $55 Allen Ltd has offered to make the component for BioMix at a price of $49 per unit. If the offer were accepted, BioMix could save only 40% of its fixed overheads as most of the facilities could not be used for other purposes. Required: (Show all calculations) (a) Should BioMix Ltd. accept Allen's offer? What other factors should they consider? (5 marks) (b) Would your decision, in (a) above, change if BioMix Ltd had the opportunity to sublet its production facilities if it accepted Allen's offer. Rental revenue would amount to $50,000 p.a

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