Make or buy. Bistel, Inc., produces semiconductors of which part no. 200 is a subassembly.

Bistel. Inc., currently produces part no. 200 in its own shop. The Cisco Company offers to supply it at a cost of $200 per 250 units. An analysis of the costs Bistel incurs producing part no. 200 reveals the following information:

Management of Bistel, Inc., needs your advice in answering the following questions:

a. Should Bistel, Inc.. accept the offer from Cisco if Bistel's plant is operating well below capacity?

b. Should the offer be accepted if Cisco reduces the price to $180 per 250 units?

c. If Bistel can find other profitable uses for the facilities it now uses in turning out part no. 200, what maximum purchase price should Bistel pay for part no. 200?

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Direct (Variable) Material. Direct (Variable) Labor... Other Variable Costs. Fixed Costs. Total. Cost Per 500 Units $ 80 "Fixed overhead comprises largely depreciation on general-purpose equipment and factory. buildings. 90 25 50 $245