Reference no: EM132516501

Toronto Auto Co, has a parts division that needs 1,000 units of component CX12 per period in making car parts. It can buy the component for $1,250 each or make them under the following conditions:

Per Unit Direct materials $ 500

Direct manufacturing labour 250

Variable manufacturing overhead 300

Fixed manufacturing overhead 250

Total $1,300

If TACo buys the components from outside, it can avoid 25% of fixed manufacturing overhead.

Required:

Question 1. Show calculations to prove whether TACo should make or buy the component.

Question 2. List additional non-financial factors the company should use in deciding whether to make or buy the component.

Question 3. What are the potential dangers of outsourcing in this situation?

Additionally, if TACo were to manufacture the part in-house, it can use extra capacity to supply another company that uses the same component.

Question  4. What cost information should be used for pricing the extra units?