EXERCISE 7-8. Make-or-buy Decision [LO 1] The Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:

The company has an offer from Duvall Valves to produce the part for $2,100 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas where, unfortunately, they really are not needed. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.

Should the company make or buy the valve?

Please show all steps. Thank you.

Cost per Unit Variable costs Direct material Direct labor Variable overhead Total variable costs $950 650 300 $1,900 Fixed costs Depreciation of equipment Depreciation of building Supervisory salaries Total fixed costs Total cost 500 200 300 1,000 $2,900