Make or Buy Decision

Part 6B is used in one of Apples products. The company makes 7,000 units of this part each year. The company's financial department reports the following costs of producing the part at this level of activity:

	Per Unit
Direct materials	$1.40
Direct labor	$2.40
Variable manufacturing overhead	$7.20
Supervisors salary	$3.60
Depreciation of special equipment	$8.90
Allocated general overhead	$4.50

An outside supplier has offered to produce this part and sell it to the company for $16.50 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $5,000 of these allocated general overhead costs would be avoided.

(1). What is the relevant cost if the company make it internally?

(2). What is the cost if the company buy it from the outside supplier?

(3). Should outside suppliers offer be accepted? Why?

Please show all the computations.