Maestro Company makes a component in-house that is used in the manufacture of a number of products produced by the company. The following describes the cost of making one unit in-house: Direct materials $70 Direct labour $50 Variable overhead $60 Fixed overhead $60 Materials handling $0.1 per dollar of direct materials cost The company currently makes 1,600 units of the component. An outside component manufacturer has offered to supply the component to Maestro at a price of $185 per unit inclusive of all purchasing costs. Required a. Determine whether the component should be purchased from the outside supplier. Assume that Maestro has no alternative use for its idle capacity. b. Explain the significance of the assumption that there is no alternative use for the idle capacity. |