Chapter 10 204 PRACTICE TEST PROBLEM 1 Bayi MAKE The management of Garvin Industries is evaluating whether the company should continue manu facturing a component or buy it from an outside supplier. Based upon its accounting records, appears that it costs the company $80 per unit to make the component. The $80 cost per compo nent was determined as follows: Direct materials. Direct labour .... Variable manufacturing overhead ....... Fixed manufacturing overhead ...... Unit cost $16 30 12 22 $80 Garvin Industries uses 10,000 components per year. After Stinson, Inc., submitted a bid of $70 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Stinson, Inc., $5 of fixed manufacturing overhead per unit would be avoided and Garvin's unused production facilities could be leased to another company for $30,000 per year