Innova uses $1,000$ units of the component IMC$2$ every month to manufacture one of its

products. The unit costs incurred to manufacture the component are as follows.

Overhead costs include variable material handling costs of $$6\mathrm{.}50,$ which are applied to products on

the basis of direct material costs. The remainder of the cverhead costs are applied on the basis of

direct labor dollars and consist of $60\%$ variable costs and $40\%$ f fixed costs.

A vendor has offered to supply the IMC$2$ component at a price of $$200$ per unit.

Instructions

a$.$ Should innova purchase the component from the outside vendor if Innova's unused faclilites

remain idle?

b$.$ Should Innova purchase the component from the outside vendor if it can use its facilities to

manufacture another product? What information will Innova need to make an accurate

decision? Show your calculations.

c$.$ What are the qualitative factors that innova will have to consider when making its decision?

NOTE: Enter a formula, a cell reference, or a value $($if you are unable to reference a cell$),$ into the

yellow shaded input cells.

Additional Question

Assume that unit cost for direct materials changed to $$68\mathrm{.}00$ and that overhead costs changed

to $$130\mathrm{.}00.$ What impact do these changes have on the make$-$or$-$buy decision?

a$.$

Net income

Increase

b$.$

c$.$