Haslam Corporation is a global manufacturer of highly engineered products that serve industrial vehicle, construction, commercial, aerospace, and semiconductor markets. It frequently subcontracts work to other manufacturers, depending on whether Haslams facilities are fully occupied. Suppose Haslam is about to make some final decisions regarding the use of its manufacturing facilities for the coming year. The following are the costs of making part XYZ8, a key component of an emissions control system: Total Cost for 100,000 Units Cost per Unit Direct material $ 800,000 $ 8 Direct labor 700,000 7 Variable factory overhead 300,000 3 Fixed factory overhead 500,000 5 Total manufacturing costs $2,300,000 $23 Another manufacturer has offered to sell the same part to Haslam for $18 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. All the fixed overhead would continue if Haslam bought the component except that the cost of $200,000 pertaining to some supervisory and custodial personnel could be avoided.

Required a) Assume that the capacity now used to make parts will become idle if the parts are purchased. Should Haslam buy or make the parts? Show computations.

b) Assume that capacity now used to make parts will be used to make oil filters that will yield a profit contribution of $200,000. Should Haslam buy or make part XYZ8? Show computations.