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Scottish Elements Inc. sells 30,000 units per year of its main product. One of the main components of this product is also manufactured by the company. The company is considering purchasing this component to an external supplier.
To make the component, Scottish Elements invests $ 5.00 ($ 2.00 variable and $ 2.50 and fixed). The other company offers to sell the component $ 4.00. The company buying the other component will eliminate Scottish Elements all variable costs but keeps all fixed costs. At the moment the company does not have any other use for the area that the component manufacturing.
Should the company continue by manufacturing this piece or external supplier must buy?
Showing the procedure and justify your answer with the required analysis.
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