Company is considering outsourcing a key component. A reliable supplier has quoted a price of

$63.50

per unit. The following costs of the component when manufactured in-house are expressed on a per unit basis

Direct materials	$23.60
Direct labor	15.50
Variable overhead	27.80
Fixed overhead	6.80
Total costs	$73.70

Requirement

(a)	What assumptions need to be made about the behavior of overhead costs for Kane in order to analyze the outsourcing decision?
(b)	Should Kane Company outsource the component?
(c)	What other factors are relevant to this decision?

Requirement (a) What assumptions need to be made about the behavior of overhead costs for

Kane

in order to analyze the outsourcing decision?The assumption must be made

.Requirement (b) Should

Kane

Company outsource the component?

Complete the following analysis of the cost to outsource the key component. (Use a parentheses or minus sign to show a net additional cost of purchasing the key component. Leave unused cells blank.)

Item

Relevant amount

Savings:

Additional costs:

Total savings (additional costs)