Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 14,000 of the part at $5.50 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part.

		Make		Buy		Net Income Increase (Decrease)
Variable manufacturing costs		$		$		$
Fixed manufacturing costs
Purchase price
Total annual cost		$		$		$

What should they do?

The decision should be to make the part