Grape manufactures component X to be used in its final product. Grape incurred the following manufacturing costs when it produced 66,000 units last year: Direct Materials $ 660,000 Direct Labour $ 132,000 Variable Overhead $ 66,000 Fixed Overhead $ 410,000 Manufacturing cost $ 1,268,000 Grape needs 80,000 Component X next year. Another company has offered to sell Grape the Component X for $ 14 per unit. If Grape outsources the Component X, they can use its idle capacities to manufacture another product that will contribute $ 130,000 operating income. a. Based on the outsourcing proposal received and the demand Grape needs for next year, Should Grape Systems make or buy the component? Show your analysis.

b. Independent of Part a, assume that Grape cannot use the idle capacity to make other products but $ 120,000 of the fixed cost can be avoided by outsourcing production. Assume Grape needs 73,000 instead of 66,000 units of Component X next year, what would Grape do?

c. In reference to (b), what is the most Grape would be willing to pay to outsource Component X?