Shown below is next year's budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which are incorporated into the output of the firm's finished products.

Â	Component	Component	Component
Â	A	B	C
Production	14 000 units	10 000 units	6000 units
Prime cost (£ per unit):	Â	Â	Â
Direct materials	Â	Â	Â
Forming dept	8	7,	9
Direct labour	Â	Â	Â
Forming dept	6	9	12
Finish dept	10	15	8
Â	24	31	29
Manufacturing times (hours per unit):	Â	Â	Â
Machining	Â	Â	Â
Forming dept	4	3	2
Direct labour	Â	Â	Â
Forming dept	2	3	4
Finishing dept	3	10	2
Â	Â	Â	Â
Â	Forming	Finishing	Â
Â	department	department	Â
Â	(£)	(£)	Â
Variable overheads	200 900	115 500	Â
Fixed overheads	401 800	231 000	Â
Â	£602 700	£346 500	Â
Machine time required and available	98 000 hours	Â	Â
Labour hours required and available	82 000 hours	154 000 hours	Â

The forming department is mechanized and employs only one grade of labour, the finishing department employs several grades of labour with differing hourly rates of pay.

Required:

(a) Calculate suitable overhead absorption rates for the forming and finishing depart­ments for next year and include a brief explanation for your choice of rates.

(b) Another firm has offered to supply next year's budgeted quantities of the above components at the following prices:

Component A £30

Component B £65

Component C £60

Advise management whether it would be more economical to purchase any of the above components from the outside supplier. You must show your workings and, considering cost criteria only, clearly state any assumptions made or any aspects that may require further investigation.

(c) Critically consider the purpose of calculating production overheads absorption rates.