Company A makes one of its components at a cost of $13.18 per unit. Current production level of 80,000 units per month. This component is used in the manufacture of several other products which are sold to customers. Operating capacity in the production area is 100,000 units per month.

Production costs break down as follows:

Direct Material $4.25/unit; Direct Labor $4.80/unit

Variable overhead costs $2.65/unit

Fixed overhead costs $118,400

Approximately 30% of the fixed costs are directly associated with production and the remainder are allocated.

A supplier of several other components has offered to deliver 80,000 units/month at a cost to Company A of $12.00/unit.

Based on the information given, should Company A continue to manufacture the component or accept the suppliers offer? What other information should you seek out before making a final decision on this offer?