Question 5: Kane Company is considering outsourcing a key component. A reliable supplier has quoted a price of $64.50 per unit. The following costs of the component when manufactured in-house are expressed on a per unit basis (assume Direct Labor is a variable cost):

Direct Materials $23.40

Direct Labor 16.10

Variable Overhead 26.70

Fixed Overhead 6.90

Total costs $73.10

a) What assumptions need to be made about the behavior of overhead costs for Kane in order to analyze the outsourcing decision?

SAVING ITEMS	RELEVANT
Direct Materials Cost	???
Direct labor Costs	???
Variable overhead costs	???
Fixed overhead costs	???

ADDITIONAL COSTS	RELEVANT COSTS
Direct labor Costs	???
Direct materials Costs	???
Fixed Overhead Costs	???
Variable overhead cost	???

b) Should Kane Company outsource the component? ???

c) What other factors are relevant to this decision? ???