F Question 3: Make versus buy You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $85 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows:

	cost per unit
direct materials	$30
direct labor	$30
variable overhead	$20
fixed overhead	$10
total	$90

If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY:

	MAKE	BUY
unit VC
total VC

If you outsource (BUY), the incremental revenue, costs, and profit are:

	how much each amount changes if you outsource
Incremental revenue
Incremental VC
Incremental CM
Incremental FC
Incremental profit

Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000). Should you outsource?

NO - outsourcing reduces profit by $5,000

YES - outsourcing reduces costs by $5,000