Mohave Corporation is considering outsourcing umbrella tote bags included with some of its products. The company has received a bid from a supplier in Vietnam to produce 10,000 units per year for $ 7.00 each. Mohave has the following information about the cost of producing tote bags:

Direct Materials $3.00

Direct Labor $2.00

Variable Manufacturing Overhead $ 1.00

Fixed Manufacturing Overhead $ 2.50

Total cost per unit $ 8.50

Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to produce tote bags.

1. Compute the difference in cost between making and buying the umbrella tote bags?