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The Compressed Air Company makes scuba tanks. The tanks have a regulator that requires the...

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Accounting

The Compressed Air Company makes scuba tanks. The tanks have a regulator that requires the company to make a special valve. The cost to make this valve is as follows:

Direct materials $7.50

Direct labour $3.25

Variable manufacturing overhead $2.10

Fixed manufacturing overhead $1.10

Unit product cost $13.95

The company makes 10,000 tanks every year. An outside supplier has offered to sell the company the same valve at a cost of $12.50 per unit. By purchasing the valve the company will eliminate half of its fixed manufacturing overhead. Calculate the relevant costs the company should consider before making the decision to purchase the valve from the outside supplier.

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