Assume a company is considering using available space to make 10,000 units of a component part that it has been buying from a supplier for a price of $42.00 per unit. The companys accounting system estimates the following costs of making the part:

	Per Unit					10,000 Units per Year
Direct materials		$	19				$	190,000
Direct labor			12					120,000
Variable manufacturing overhead			2					20,000
Fixed manufacturing overhead, traceable			8					80,000
Fixed manufacturing overhead, allocated			4					40,000
Total cost		$	47				$	450,000

One-half of the traceable fixed manufacturing overhead relates to a supervisor that would have to be hired to oversee production of the part. The remainder of the traceable fixed manufacturing overhead relates to depreciation of equipment that the company already owns. This equipment has 20,000 units of unused capacity, no resale value, and it does wear out through use. The allocated fixed manufacturing overhead relates to general overhead costs, such as the plant managers salary, lighting, heating and cooling costs, and plant insurance costs. What is the financial advantage (disadvantage) of making 10,000 units instead of buying them from the supplier?

Multiple Choice

• $50,000

• $(20,000)

• $(50,000)

• $20,000