BEN Products manufacture 40000 units of part X-6 each year for use on its production line. At this level of activity, the cost per unit for part X-6 is as follows:

Direct materials	$ 4.00
Direct labor	12.00
Variable manufacturing overhead	3.00
Fixed manufacturing overhead	10.00
Total cost per part	29.00

An outside supplier has offered to sell 40,000 units of part X-6 each year to Ben Products for $ 25 per part. If Ben Products accepts this offer, the facilities now being used to manufacture part X-6 could be rented to another company at an annual rental of $50,000. However, Ben Products has determined that one half of the fixed manufacturing overhead being applied to part X-6 would continue even if part X-6 were purchased from the outside supplier.

Required:

Prepare computations showing how much profits will increase or decrease if the outside suppliers offer is accepted.

40000 Units

	Make	Buy	Make	Buy
Cost of purchasing		1.$_______		2.$ _______
Cost of making
Direct materials	$ 4		3. $ _____
Direct labour	$ 12		4.$ ______
Variable overhead	5.$ _____		120000
Fixed overhead	$ 6		200000
Total cost	7.$ _____	8.$ ______	9.$ ______	10.$ ______
	Make	Buy
Total cost, as above	11.$____	12.$ _____
The rental value of the space (opportunity cost)	13.$ _____
Total cost, including opportunity cost	14.$ _____	15.$______
The net advantage in favour of buying		16.$______