(Outsourcing) Highland Technologies manufactures fiberglass housings for portable generators. One part of a housing is a metal latch. Currently, the company produces the 120,000 metal latch units required annually. Com¬ pany management is considering purchasing the part from an external ven¬ dor. The following data are available for making the decision:

a. Assuming that all of Highland Technologies’ internal production costs are avoidable if it purchases rather than makes the latch, what would be the net annual cost advantage to purchasing the latches?

b. Assume that some of Highland Technologies’ fixed overhead costs could not be avoided if it purchases rather than makes the latches. How much of the fixed overhead must be avoidable for the company to be indiffer¬ ent as to making or buying the latches?LO.1  

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Cost per Unit to Manufacture Direct material $0.40 Direct labor 0.34 Variable overhead 0.18 Fixed overhead-applied 0.28 Total cost $1.20 Cost per Unit to Purchase Purchase price $0.98 Freight charges 0.02 Total cost $1.00