Frederick Company is thinking about having one of its products manufactured by an outside supplier. Currently, manufacturing the product would cost $12.40 per unit for direct materials and $9.40 per unit for direct labor. Factory overhead is normally $10.40 per unit, and incremental overhead to make this product is $7.60 per unit. If Frederick Company can buy 5,000 units from an outside supplier for $130,000, the company should:

• Make the product because factory overhead is a sunk cost.

• Make the product because the total incremental costs of manufacturing are less than $130,000.

• Buy the product because the total incremental costs of manufacturing are greater than $130,000.

• Make the product because current factory overhead is less than $130,000.

• Buy the product because total fixed and variable manufacturing costs are greater than $130,000.