The estimated costs of producing 6,000 units of a component are:

Per Unit

Direct Material

$10

Direct Labor

8

Applied Variable Factory Overhead

9

Applied Fixed Factory Overhead

12

$1.5 per direct labor dollar

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

Required:

a.Should the component be purchased from the market? (1.5 marks)

Being a production manager, provide your logical opinion on choosing between purchasing the component from market or producing in-house (1 marks)