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ABC Company acquired 10,000 units of Product Z from its supplier at $74 per units every year. Because of the uncertainty of the price being

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ABC Company acquired 10,000 units of Product Z from its supplier at $74 per units every year. Because of the uncertainty of the price being coded by the supplier, the price of the Product Z may increase in the future. Management of ABC Company then decides to establish a committee, consists of production manager, accounting manager, and operation manager, to study the possibility of producing Product Z using the current production facilities of the company, instead of acquiring from supplier. After the study, committee reports the total cost for producing 10,000 units of Product Z are estimated at $957,000, or $95.70 per unit, and recommends continuing the purchase from supplier rather than producing it. Following cost report is presented to support the decision: Material used in production $120,000 Assembly labor cost 300,000 Manufacturing overhead 450,000 Operating cost 87,000 Total cost for 10,000 units produced $957,000 Cost per unit $95.70 Report also includes the following notes: ' Assembly labor cost is computed based on the hourly production worker. 0 Manufacturing overhead is applied at 150% of assembly labor cost, where 50% is considered as fixed overhead cost and 100% as variable overhead cost. Operating cost is estimated to be 10% of material used, assembly labor cost, and manufacturing overhead. - All fixed overhead costs are considered as common costs. Therefore, they are considered as unavoidable costs. Required: Was the analysis prepared by the committee and the recommendation to continue purchasing Product Z from the supplier correct? (Explain your answer and include any supporting calculations you consider necessary)

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