ABC manufactures one of the components that it uses in the production of its mountain bikes. The cost of producing the component is as follows:

	Per unit	16,000 units
Direct materials	$12	$192,000
Direct labour	8	128,000
Variable manufacturing overhead	2	32,000
Salary of supervisor	6	96,000
Depreciation of specialized equipment	2	32,000
Allocated overhead	2	32,000
Total cost	$32	$512,000

An outside supplier has offered to provide ABC with its annual component requirement of 16,000 units at a price of $31 per unit. If ABC accepts this offer, the specialized equipment it currently uses to produce the component would be scrapped, with no residual value, and the supervisor would be terminated because the position would no longer be required.

Should ABC continue to manufacture the component or purchase it from the outside supplier ?

Group of answer choices

1.Manufacture the component because it costs $9 less per unit than to purchase it.

2.Manufacture the component because it costs $1 less per unit than to purchase

3.Manufacture the component because it costs $3 less per unit than to purchase

4.Purchase the component because it costs $1 less per unit than to manufacture