Make or Buy Eastside Company incurs a total cost of $120,000 in producing 10,000 units of a component needed in the assembly of its major product. The component can be purchased from an outside supplier for $11 per unit. A related cost study indicates that the total cost of the component includes fixed costs equal to 25% of the variable costs involved.

a. Should Eastside buy the component if it cannot otherwise use the released capacity? Present your answer in the form of differential analysis.

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

Cost from outside supplier	=110,000
Variable costs avoided by purchasing	=_____ (answer is NOT 120,000)
Net advantage (disadvantage) to purchase alternative	=_____ (answer is NOT -10,000)

b. What would be your answer to requirement (a) if the released capacity could be used in a project that would generate $20,000 of contribution margin?

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

Cost from outside supplier	= 110,000
Variable costs avoided by purchasing	=_____ (answer is NOT 120,000)
Contribution margin generated by new project	= 20,000
Net advantage (disadvantage) to purchase alternative	=_____ (answer is NOT -10,000)