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ABC Co. currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials $1,
Direct labour $10,
Variable overhead $5,
Fixed overhead $8.
XYZ Co. has contacted ABC Co. with an offer to sell it 4,000 of the subassemblies for $17/ unit. If ABC Co. buys the subassemblies, $2 of the fixed overhead per unit will be allocated to other products.
Problem 1: Should ABC Co. make or buy the subassemblies?
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