Make-or-Buy, Traditional Analysis Garcia Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. * Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,620 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Garcia is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: No significant non-unit-level costs are incurred. Garcia is considering two alternatives to supply the productive capacity for the subassembly. 1. Lease the needed space and equipment at a cost of $35,370 per quarter for the space and $13,100 per quarter for a supervisor. There are no other fixed expenses. 2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixed expenses, including supervision, would be $49,780,$10,480 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge will not be affected. Required: 1. Should Garcia Company make or buy the subassembly? If it makes the subassembly, which alternative should be chosen? Enter the relevant costs of each alternative. 2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What decision should now be made? 3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 3,668 subassemblies are required per quarter. As before, assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are the same as in Requirement 1. Include the leasing alternative in your consideration. Now, what is the correct decision