Tito Manufacturing uses 1,000 units of the component ABCD every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows:

Direct materials $65

Direct labor 48

Overhead 96

Total $209

Overhead costs include variable material handling costs of $10, which are applied to products on the basis of direct material costs. The remainder of the overhead costs is applied on the basis of direct labor dollars and consists of 50% variable costs and 50% fixed costs.

A vendor has offered to supply the ABCD component at a price of $175 per unit.

Instructions

1.Should Tito purchase the component from the outside vendor? Explain your answer.