Making a decision to manufacture or buy. The Gonzalez Company is currently manufacturing a part. An outside supplier has offered to provide the part for $55 per unit. Cost data relating to production of the part for the past year, when 3,000 units were manufactured, are given here. Fixed costs are allocated on the basis of direct labor hours.

Materials $79,500 Direct Labor 84,000 Indirect Labor 1,000 Other Variable Costs 3,000 Miscellaneous Fixed Costs 7,500 If the part is purchased outside, the equipment can be used in producing other items that are in demand. A shipping cost of $1.24 per unit will be 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.