I need to check my work. Thanks!

Situation #2:

Umbee is a manufacturer of umbrellas. They manufacture many different models, ranging from the small umbrellas to large umbrellas in a variety of colors. Umbee has many capabilities and typically makes most components themselves; however, they have recently received an offer from Leonard Handy Company (LHC) to make and sell 5,000 handles to Umbee at $3.50 per unit. As the accounting intern, the Controller has asked you to evaluate this offer and make a recommendation as to whether or not the company should continue to make their own handles or buy them from LHC.

You have investigated the costs and have learned the following based on a typical production run of 5,000 units:

		Per Unit	5,000 Units
Direct Materials		$ 1.37	$ 6,850
Direct Labor		$ 0.82	$ 4,100
Variable Overhead		$ 0.63	$ 3,150
Supervisor's Salary		$ 0.42	$ 2,100
Depreciation of Special Equipment		$ 0.37	$ 1,850
Allocated General Overhead		$ 0.72	$ 3,600
Total Cost		$ 4.33	$ 21,650

Additional information:

a. Umbee has all of the required equipment to produce all parts of the umbrella and will continue to incur depreciation costs.

b. General Overhead expenses are allocated to different areas of production by manufacturing space. The square footage associated with handle manufacturing will remain on the books whether or not production occurs.

c. If the purchase is made, the supervisor's role will be eliminated.

Instructions:

Make a recommendation to the Controller: should Umbee continue to make seats internally or should they buy seats from LHC? Why? Support your answer with a computation or illustration to support that recommendation. What is the net impact on the company?