The make or buy decision Kirkwood Engine, Inc., produces engines for the water- LO 2, 3 craft industry. An outside manufacturer has offered to supply several component parts used in the engine assemblies, which are currently being produced by Kirkwood. The T^'OR\ supplier will charge Kirkwood $400 per engine for the set of parts. Kirkwood’s current costs for those part sets are direct materials, $240; direct labor, $120; and manufac¬ turing overhead applied at 100% of direct labor. Variable manufacturing overhead is considered to be 25% of the total, and fixed overhead will not change if the part sets are acquired from the outside supplier.

Required:

Should Kirkwood Engine, Inc., continue to make the part sets or accept the offer to purchase them for $400?