Ace Bicycle produces bicycles and manufactures all parts internally. Ace has received an offer from an outside vendor to supply all of the chains Ace requires at $8.20 per chain. Aces expected production for the year is 10,000 units. The following information relates to chain production:

Variable Costs: $7.50/unit, $75,000 total

Machine Rent: $5000

Other Fixed Costs: $30,000

Total Costs: $110,000

Suppose that if Ace buys the chains from the outside vendor, the factory where Ace used to make the chains could instead be used to upgrade the bicycles with higher quality chains. The upgrade would increase the selling price of the bicycles by $20, variable costs per unit by $18, and (fixed) tooling costs by $16,000.

1. Should Ace make or buy the chains?

2. What is the maximum price per chain Ace would be willing to pay to the outside vendor (so that they are indifferent between making and buying the chains)?