Sunsuki Company manufactures a component (XYZ) used in their final products. David Peris, the management accountant, has been assigned the task of determining whether this component should continue to be manufactured by the company or purchased from Expo Limited, an outside supplier. Expo Limited has submitted a bid to manufacture and supply 30,000 units of XYZ the company needs for next year at a unit price of $8.65. David has gathered the following information regarding the cost of manufacturing 30,000 units of XYZ in the current year.

	Per unit		Total
Direct material	$3.25		$97,500
Direct labour	$2.00		$60,000
Factory space rental	$1.50		$45,000
Equipment leasing costs	$0.60		$18,000
Fixed manufacturing overhead	$3.75		$112,500
Total manufacturing costs	$11.10		$333,000

David has also collected the following additional information related to manufacturing XYZ.

Direct materials used in the production of XYZ are expected to increase by 8% next year.

Direct labour costs are expected to increase by 5% next year.

The rental agreement of the facilities to manufacture the XYZ, costing $45,000, can be withdrawn anytime without any penalty. The company has no need for this space if XYZ is not manufactured.

The lease for special equipment used to manufacture XYZ, costing $18,000 annually, can be terminated by paying the equivalent of one months lease payment for each year left on the lease agreement. The company has two years left on the lease agreement from the beginning of next year.

The fixed manufacturing overhead costs are not expected to change regardless of whether XYZ is manufactured or not.

Required:

(a) Prepare an analysis of relevant costs that shows whether or not the Sunsuki Company should make XYZ or purchase it from Expo Limited next year.

(b) Identify and briefly discuss qualitative factors that the company should consider before agreeing to purchase XYZ from Expo Limited.