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Question 3 (10 marks) Sims Aircon needs 10,000 units of a certain part that will be used in the production of its air conditioning pumps. If Sims buys the part from Tang Lee Corporation instead of making it themselves, Sims could not use the present facilities for another manufacturing activity. Seventy per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented: Cost of making the part: Direct materials Direct labour Variable overhead Fixed overhead applied $5.00 25.00 12.00 15.00 $57.00 $45.00 Cost of buying the part: Sims Aircon has a highly trained skilled workforce and operates its manufacturing facility in an area with high unemployment and it is unlikely that displaced employees will easily find other employment. Required: 1. In deciding whether to make or buy the part, what are Sims Aircon's total relevant costs to make the part? What are the total relevant costs of buying the part from Tang Lee Corporation? Explain your calculations. (4 marks) 2. Which alternative (make or buy) is more desirable to Sims and by what financial amount? Explain. (2 marks) 3. Discuss any other factors that Sims should consider, and which may influence its decision. Be specific. (4 marks)

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