Toronto Auto Co [TACo], has a parts division that needs 1,000 units ofcomponent CX12 per period in making car parts. It can buy the component for$1,255 eachor make them under the following circumstances:

Per UnitDirectmaterials$500

Directmanufacturinglabour250

Variablemanufacturingoverhead200

Fixedmanufacturingoverhead350

Total$1,300

If TACo buys the components, it can save 25% of fixed manufacturingoverhead.

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

Alternatively, if TACo were to manufacture the part in-house, it can

use extra capacity to supply another company that uses the same component.

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

Required:

1. List additionalnon-financial factors the company should use in deciding whe-ther to make or buy the component.
2. What are the potential dangers of outsourcing in thissituation?