Determining Whether to Outsource $[$LO$1$ CC$4]$

Go Company has traditionally manufactured a number of different standard machine parts. It is now exploring an

outsourcing decision for several of the parts that it currently produces. Cost information for one such machine part is given

below:

Variable cost$/$unit

Fixed manufacturing costs $($total$)$

Allocated corporate overhead

Unit product cost $($based on $500$ units$)$

$28\mathrm{.}00$

$4,250\mathrm{.}00$

$6,560\mathrm{.}00$

Required:

$ $49\mathrm{.}62$

Fifty percent of the fixed manufacturing costs are directly traceable to this specific machine part and therefore avoidable.

An outside supplier will sell the part at a price of $$45$ per unit if $500$ units are purchased.

Assess whether Go Company should continue to manufacture this machine part, or purchase it from the outside supplier.