1) Three Stars Inc. manufactures prefabricated houses. The firm's president, Michelle Brown, is interested in determining whether it would be better to manufacture the doors used in the houses or to buy these doors from a supplier. The following information, based on production of 500 doors, has been gathered by the company's management accountant to help determine the best option:

Per-Unit Costs

Direct materials

$

35

Direct labor

50

Variable overhead

10

Fixed overhead:

Administrative salaries

$

7

Property taxes

2

Insurance

5

Utilities

5

Miscellaneous fixed overhead

6

Total cost

$

120

Of the fixed overhead costs, Three Stars estimates that it could save $5 per unit of miscellaneous fixed overhead if it purchases the doors from a supplier and allocates all other fixed costs elsewhere. The total cost to purchase the 500 doors from a supplier would be $55,000.

Required:

Based on a short-run financial analysis, should Three Stars make or purchase the doors?