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The make or buy decision Lakeview Engine Inc. produces engines for the watercraft industry. An outside manufacturer has offered to supply several component parts used in the engine assemblies, which are currently being produced by Lakeview. The supplier will charge Lakeview $270 per engine for the set of parts. Lakeview's current costs for those part sets are direct materials. $160; direct labor, $80: and manufacturing overhead applied at 100% of direct labor. Variable manufacturing overhead is considered to be 20% of the total, and fixed overhead will not change if the part sets are acquired from the outside supplier. Required: Should Lakeview Engine comtinue to make the part sets or accept the offer to purchase them for $270? Answer: Lakeview Engine Inc. Current Avoidable Production Costs if Spend Costs Purchased if Buy Manufacturing Cost direct material 160 160 direct labor 80 80 Fixed overhead 160 0 Variable Overhead 80 0 Total Cost Per Unit 480 240 Purchase Costs: 270 Conversion processing Savings of 240