Dog Company makes 8,000 units per year of a part 5C for use in one of its products. Data concerning the unit production costs of the part follow:

Direct Materials

$40

Direct Labour

$15

Variable Manufacturing Overhead

$7.5

Fixed Manufacturing Overhead

$30

Total Manufacturing Cost per Unit

$92.50

An outside supplier has offered to sell Dog Company all of the part 5Cs that it requires for $80 per unit. If Dog Company decided to discontinue making the part 5Cs, 30% of the above fixed manufacturing overhead costs could be avoided.

Required:

Assume that Dog Company could use the facilities presently devoted to production of the part 5Cs to expand production of another product that would yield an additional contribution margin of $50,000 annually. Should Dog Company continue to make part 5C or purchase from the outside supplier?