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Company A currently buys a component for one of its products at P22 per unit. Company A needs 32,000 units of the component in the

Company A currently buys a component for one of its products at P22 per unit. Company A needs 32,000 units of the component in the coming year. The product will be redesigned, so that the component will not be needed beyond the coming year. The production manager believes that the company could make the component with P15,000 of materials cost and P13,000 of direct labor and variable overhead costs for the first batch of 1,000 units. Variable overhead is related to direct labor. Making the component involved no incremental fixed costs because the company could use existing equipment. The production manager expects 80% learning rate. Determine the financial advantage/(disadvantage) should Company A make the component.

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