Innovative Automation Corporation is currently manufacturing a part that goes into its main product. Each year 4,900 of these parts are used. Cost data for the past year that relates to the 4,900 parts are given below. Fixed costs are allocated on the basis of direct labor hours. An outside company has offered to supply the part for $47.10 per unit, plus a shipping charge of $4.90 per unit. The plant now used by Innovative Automation Corporation to manufacture the part would not be used to capacity within the foreseeable future if the part is purchased outside.

Variable costs:
Direct materials..............................$142,100
Direct labor.........................................93,100
Variable overhead costs.......................9,310
Fixed overhead costs.........................24,500

INSTRUCTIONS
1. Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it.
2. What other factors are important in making the decision to accept or reject the offer?
Analyze: What is the highest cost that Innovative Automation Corporation should consider paying for the part in an outside purchase?