Cannon Co. has been producing a part for a camera they manufacture. The costs for this part are as follows:

Fixed costs

$392,000

Total variable costs

$112,000

Units produced

28,000

Cannon has an opportunity to purchase this part rather than manufacture it. To purchase the part will cost $3 a unit. If the part is purchased, fixed costs will be reduced by 20%.

Should Cannon Co. make or buy this part? Show how you arrived at your decision.