In addition to fine chocolate, International Chocolate Company also produces chocolate-covered pretzels in its Savannah plant. This product is sold in five-pound metal canisters, which also are manufactured at the Savannah facility. The plant manager, Marsha Mello, was recently approached by Catawba Canister Company with an offer to supply the canisters at a price of \($.95\) each. International Chocolate's traditional product-costing system assigns the following costs to canister production.

Mello's conventional make-or-buy analysis indicated that Catawba's otter should be rejected, since only \($708,000\) of costs would be avoided (including \($80,000\) of supen isorj salaries and \($28,000\) of machinery depreciation). In contrast, the firm would spend \($722,000\) buying the canisters. The controller, Dave Mint, came to the rescue with an activity-based costing analysis of the decision. Mint concluded that the cost-driver levels associated with canister production are as follows:

Required:
1. Show how Mello arrived at the \($708,000\) of cost savings in her conventional make-or-buy analysis.
2. Determine the costs that will be saved by purchasing canisters, using Mint's ABC data.
3. Complete the ABC relevant-costing analysis of the make-or-buy decision. Should the firm buy from Catawba?
4. If the conventional and ABC analyses yield different conclusions, briefly explain why.

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Direct material. Direct labor (12,000 hr. at $16 per hr.). Variable overhead ($10 per direct-labor hr.) $ 288,000 192,000 120,000 (continues)