The management of Hillsboro Industries is evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. In the past Hillsboro Industries normally used 10,000 components per year.Based upon the past demand, it appears that it costs the company $80 per unit to make the component.The $80 cost per component was determined as follows:

Direct material$16

Direct labour30

Variable manufacturing overhead12

Fixed manufacturing overhead22

Total$80

Next year, due to a mild recession, the company believes that they will only require 9,000 components.An outside supplier, Ricardo Inc., has submitted an offer to supply Hillsboro with the component.They submitted a bid of $70 per component to supply Hillsboro with the component.

Management felt they could reduce costs by buying from outside and discontinuing production of the component.A further analysis indicated the following with respect to this make or buy opportunity:

• If the component is obtained from Ricardo Inc., $5 of fixed manufacturing overhead per unit would be avoided
• If the component is obtained from Ricardo Inc., Hillsboro's unused production facilities could be leased to another company for $30,000 per year.

Based upon relevant cost differences, should Hillsboro Industries make or buy the component?Include your supporting calculations.What other qualitative issues should be considered?On the basis of your quantitative and qualitative analysis, should Hillsboro make or buy the component?