Moon Technologies manufactures a part used in the manufacture of digital cameras. Currently, Moon manufactures 60,000 units of the part annually. The annual costs of producing 60,000 parts include:

Per Unit Total

Direct Materials $12.50 $750,000

Direct Labor $10 $600,000

Variable MOH $8.75 $525,000

Fixed MOH $12.50 $750,000

Management is considering whether to continue manufacturing the part, or to buy the part from an outside supplier at a cost of $24 per part. Purchasing the part from an outside source would enable the company to avoid 50% of fixed manufacturing overhead costs. The space freed up by purchasing the part from an outside supplier could be used to manufacture another product that would increase income by $70,000. What is the financial advantage (disadvantage) of making the part rather than buying them from an outside supplier?

Multiple Choice

• $(745,000)

• $1,815,000

• ($880,000)

• $2,695,000