3. (18 pts) Make or Buy Decision Tracy Inc. makes GPS systems, which include several electronic components. Snedecor Company has offered to supply these electronic components at a price of $60 each. Tracy uses 35,000 units of these components each year. Tracys unit cost to manufacture the components is as follows: Direct material $ 28.50 Direct labor 16.00 Variable overhead 11.00 Fixed overhead 17.50 Total $ 73.00

a. Assume that none of the fixed overhead would be eliminated if the components are purchased. If Tracy decides to purchase the components from Snedecor, how much would its operating income increase or decrease? Should Tracy continue to make the components or should Tracy buy them from Snedecor?

b. Now assume instead that 60% of Tracys fixed overhead would be eliminated if the electronic components were no longer produced in-house. If Tracy decides to purchase the components from Snedecor, how much would its operating income increase on decrease? Should Tracy continue to make the components or should Tracy buy them from Snedecor?

c. In addition to the analysis of the impact on operating income, there are important qualitative factors that should be considered in the make or buy decision. Name two qualitative factors in the decision.