1. McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 12,000 units of this part are as follows:

Direct materials $86,000

Direct labor 126,000

Variable factory overhead 58,000

Fixed factory overhead 138,000

Total costs $408,000

Of the fixed factory overhead costs, $55,000 is avoidable. Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit.

1. If McMurphy had the opportunity to use the facility to make a different product that would have a total contribution margin of $168,000, McMurphy should:

1. Make because it will save $1,000
2. Make because it will save $11,000
3. Buy because it will save $1,000
4. Buy because it will save $11,000