Interdesign 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:

Direct materials

$$70$

Direct labour

$50$

Overhead

$130$

Total

$$250$

Overhead costs include variable material handling costs of $$8,$ which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labour dollars and consist of $50\%$ variable costs and $50\%$ fixed costs.

A vendor has offered to supply the IMC$2$ component at a price of $$220$ per unit.

Instructions

Should Interdesign purchase the component from the outside vendor if Interdesign$$s unused facilities remain idle?

a$.$ $$(31,000)$

Should Interdesign purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Interdesign need to make an accurate decision? Show your calculations.

What are the qualitative factors that Interdesign will have to consider when making this decision?