Lante Company makes and sells garden tractors. For many years, it has purchased one of the components it uses to install on the tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the components. The production manager has recommended against this move by pointing out that the cost to produce the component would be greater than the current 10.00 per unit purchase price. The unit product cost of the component based on a production level of 60,000 units per year is shown below:

Per Unit ()

Direct materials 5.00

Direct labour 1.25

Variable manufacturing overhead 1.00

Fixed manufacturing overhead, traceable 3.00

Fixed manufacturing overhead, common (allocated based on direct labour hours) 2.75

Total production cost 13.00

An outside supplier has offered to supply the component to Lante for 10.00 per unit.

Required: Should the company accept the offer of this outside supplier given the following addition information?

One-third of the traceable fixed manufacturing costs are supervisory salaries that can be eliminated if the components are purchased.

The rest of the traceable fixed manufacturing costs are depreciation of special manufacturing equipment. The equipment has no resale value.

The decision would have no effect on the common fixed costs of the company

The factory space being used to produce the component has no other use.