Make or buy Bug-Off Corporation produces and sells a line of insect repellants that are sold primarily in the summer months. Recently, the chief operating officer has become interested in manufacturing a "pepper" repellant for warding off an assailant. The appeal of this product is that it would have year-around sales and thus would help stabilize the income of the company.

The product, however, must be sold in a specially designed spray can that cannot be discharged accidentally. The product will be sold in cartons that hold 24 cans of the repellant. The sales price will be \(\$ 96\) per carton. The plant is now operating at only \(65 \%\) of its total capacity, so no additional fixed costs will be incurred. However, a \(\$ 100,000\) fixed overhead charge will be allocated to the new product from the company's present total of fixed costs.

Using the current estimates for 100,000 cartons of "Sneeze" as a standard volume, the following costs were developed for each carton, including the cost of the can:

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Direct materials Direct labor Overhead (includes allocated fixed charge) Total cost per carton $12 6 4 $22 Bug-Off Corporation has requested a bid from a manufacturer of speci- alty dispensers for a purchase price of an empty can that could be used for the new product. The specialty company offered a price of $4 for a carton of cans. If the proposal is accepted, Bug-Off estimates that direct labor and variable overhead costs would be reduced by 10% and direct materials would be reduced by 20%. Required: 1. Should the Bug-Off Corporation make or buy the special cans? (Hint: First compute the costs that could be saved by buying the cans.) 2. What would be the maximum purchase price acceptable to Bug-Off Corporation for the cans?