Company D manufactures wheels for its ATVs. The annual costs to manufacture the 150,000 wheels needed each year are as follows:

Total Cost

Direct materials

$ 165,000

Direct labor

45,000

Variable manufacturing overhead

60,000

Fixed manufacturing overhead

300,000

Total

$ 570,000

A small supplier has offered to provide Company D with its annual wheel needs for $3.50 per wheel. If Company D accepts this offer, 75% of the fixed manufacturing overhead above could be totally eliminated. Also, Company D would be able to rent out the freed up space and could generate $72,000 of income annually. Assume that direct labor is a variable cost.

By how much will Company D's profit change if they buy the wheels?

Based on your answer above, should Company D make or buy wheels?