Avas Off-Road Vehicles Company has been manufacturing its own wheels for its scooters. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 35% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $3.80 and $4.20, respectively. Normal production is 220,000 wheels per year.

A supplier offers to make the wheels at a price of $10 each. If Avas accepts this offer, all variable manufacturing costs will be eliminated, but the $90,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.

Required:

a. Prepare an incremental analysis for the decision to make or buy the wheels.

b. Should Avas Off-Road Vehicles Company buy the wheels from the outside supplier? Justify your answer.