Let's try another We currently manufacture a component whose direct materials are $4.00 per unit, direct labor is $5.00 per unit. Variable overhead is applied at 75% of direct labor cost, and fixed overhead was $30,000. We manufactured 10,000 units last month, and our supplier is offering to sell us the component for $13.50 per unit. If we accept this offer, we will only eliminate 30% of the fixed overhead costs. Should we outsource? Cost Per Unit Cost of 10,000 Units Make Buy Outside purchase price $13.50 Direct materials 4.00 5.00 Direct labor 3.75 Variable overhead 3.00 General factory overhead $15.75 Total cost Decision: Point of Indifference: Non-Financial (qualitative) Factors