Jetson Company makes a component it needs as part of its manufacture of its furnaces that it sells to retailers. It makes 25,000 of these per year.An outside supplier has recently offered to sell to Jetson the 25,000 components it needs for a price of $88 per component.In order to help with the decision, Jetson has determined that is cost per component is:

Direct materials.........

$40

Direct labour..............

16

Variable overhead.....

12

Fixed overhead.........

25

(based on a volume of 25,000 units)

Total cost..................

$93

Jetson has also determined that only 20% of the fixed overhead is directly applicable to the manufacture of this component and would, therefore be avoided if the component was purchased from the outside supplier.

Should Jetson Company continue to make the component itself or should it buy the component from the outside supplier? Show calculations to support your answer.

Jetson Company makes a component it needs as part of its manufacture of its furnaces that it sells to retailers. It makes 25,000 of these per year. An outside supplier has recently offered to sell to Jetson the 25,000 components it needs for a price of $88 per component. In order to help with the decision, Jetson has determined that is cost per component is: Direct materials......... $40 Direct labour.............. 16 Variable overhead..... 12 Fixed overhead......... (based on a volume of 25,000 units) Total cost................. Jetson has also determined that only 20% of the xed overhead is directly applicable to the manufacture of this component an-z would. therefore be avoided if the component was purchased from the outside supplier. Required: Should Jetson Company continue to make the component itself or should it buy the component from the outside supplier? Show calculations to support your answer. (4 marks)