A company manufactures telephones. The company is currently operating at full capacity and variable manufacturing costs are charged to produce at the rate of 25% of direct labour cost.

Consider the following information:

Direct Materials cost per unit equals to 30

Direct Labour cost per unit equals to 10

Normal Production is 50.000 units per year

The 30.000 of Fixed Manufacturing Overheads cannot be eliminated in case the production stops and will have to be absorbed by other products.

A supplier offers to make the telephones at a price of 40 each. Should the company buy the telephones from the outside supplier?