Andrea Company manufactures a part for its production cycle. The annual costs per unit for 20,000 units of this part are as follows:

Direct materials$15

Direct labor12

Variable indirect production costs19

Fixed indirect production costs16

Total cost$62

Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000. All the fixed indirect production costs are unavoidable if Andrea Company ceases production of the part.

Required:

A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part?

B) Assume the facilities can be rented out for $100,000 per year. Should Andrea Company buy the part? If so, how much money will be saved?

You should show your workings and provide a justification for the answer you provided.