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Assume that Synergy Inc. has been purchasing a component necessary for its final product for $220 a unit. The factory is currently operating at 80% of capacity and no major increase in production is expected in the near future. The cost per unit of manufacturing the component internally is estimated as follows:
Direct materials $ 70
Direct labor 70
Variable factory overhead 42
Fixed factory overhead 56
Total cost per unit $238
Question 1: Calculate the cost savings from manufacturing the component internally.
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