Q.2Toronto Auto Co [TACo], has a parts division that needs 1,000 units of

component CX12 per period in making car parts. It can buy the component for

$1,250 eachor make them under the following conditions:

Per UnitDirect materials$500

Direct manufacturing labour250

Variable manufacturing overhead300

Fixed manufacturing overhead250

Total$1,300

If TACo buys the components from outside, it can avoid 25% of fixed manu-

facturing overhead.

Required: Part I

1.Show calculations to prove whether TACo should make or buy the

component.

2.List additionalnon-financial factors the company should use in deciding whether to make or buy the component.

3.What are the potential dangers of outsourcing in this situation?

Part II

Additionally, if TACo were to manufacture the part in-house, it can use extra capacity to supply another company that uses the same component.

4.What cost information should be used for pricing the extra units?