Katy Co. manufactures a part for use in its production of laptops. When 6,000 items are produced, the costs per unit are:

Direct materials $54

Direct manufacturing labor 66

Variable manufacturing overhead 55

Fixed manufacturing overhead 45

Total $220

Katy Co. can buy 5,000 units for $180 per unit from Kingwood Co. The plant facilities could be used to manufacture another part at a savings of $150,000 if the firm accepts the offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated if the firm does not manufacture the part.

Required:

1. Prepare an incremental analysis for the decision to make or buy the parts. (10 pts)
2. Which alternative is best for Katy Co.? By how much (10 pts)
3. What additional factors should Katy Co. consider in deciding whether or NOT to make or buy the motors? (5 pts)