Making a decision to manufacture or buy. The Cornell Products Company is currently manufacturing a part. An outside supplier has offered to provide the part for $22 per unit. Cost data relating to production of the part for the past year, when 6,000 units were manufactured, follow. Fixed costs are allocated on the basis of direct labor hours.

If the part is purchased outside, the equipment can be used in producing other items that are in demand. A shipping cost of $.50 per unit is incurred if the part is purchased.
Instructions 1. Prepare a make or buy analysis comparing the unit costs of manufacturing the part with the unit costs of purchasing it. Round off to the nearest cent.
2. Recommend a course of action to management.

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Materials $63,600 Direct Labor 67,200 Indirect Labor 800 Variable Overhead 2,400 Fixed Overhead 6,000