D、produces a range of products and absorbs production overhead using a rate of 168% on direct wages. The absorption rate was calculated from following budgeted figures: ＄Direct wages100,000 Fixed production overhead 90,000 Variable production overhead 78,000 Sam is making component W, which is an essential part of product M. The cost of making component W is as follows: ＄ Raw material 10Direct wages 8 Production overhead 18 36 It is found that component W could be bought from an outside supplier at ＄21. It is unlikely to reduce any production costs even if component W is acquired from outside. Required: (a)Determine the overhead absorption rate. (b)Advise whether the company should continue making component W or buy it from outside.
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