Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $50 each. Arches uses 100,000 units of component DA each year. The cost per unit of this component is as follows:

Line Item Description	Amount
Direct materials	$25.00
Direct labor	6.25
Variable overhead	15.75
Fixed overhead	5.00
Total	$52.00

The fixed overhead is an allocated expense; none of it would be eliminated if production of component DA stopped.

Required:

1. What are the alternatives facing Arches Manufacturing with respect to production of component DA?

Make the component in-house or buy it from CanyonlandsMake the component in-house or sell it to CanyonlandsMake the component in-house or buy it from Canyonlands

2. List the relevant costs for each alternative. If required, round your answers to the nearest cent.

Line Item Description	Total Relevant Cost
Make	$fill in the blank 2 per unit
Buy	$fill in the blank 3 per unit
Differential Cost to Make	$fill in the blank 4 per unit

If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease(as compared to making the component in-house)?

IncreaseDecrease

fill in the blank 1 of 1$

3. Conceptual Connection: Which alternative is better?