P19.36 Make-or-buy: manufacturer LO19.6 For several years, Rockhampton Flow Technology (RFT) has purchased 10000 pumps annually from Prime Ltd. Because the price keeps increasing, reaching $68 per unit last year, RFT's management has asked for an estimate of the cost of manufacturing the pump in RFT's facilities. RFT makes stampings and castings and has little experience with products requiring assembly. The engineering, manufacturing and accounting departments have prepared a report for management that includes the estimate shown below for an assembly run of 10000 pumps. Additional production employees would be hired to manufacture the pumps, but no additional equipment, space or supervision would be needed. The report states that total costs for 10 000 units are estimated at $957 000, or $95.70 a unit. The current purchase price is $68 a unit, so the report recommends continued purchase of the product. Components (outside purchases) $120 000 Assembly labour* 300 000 Manufacturing overhead 450 000 General and administrative overhead* 87 000 Total costs $957 000 Assembly labour consists of hourly production workers. * Manufacturing overhead is applied to products on a direct labour dollar basis. Variable overhead costs vary closely with direct labour dollars. Fixed overhead 50% of direct labour dollars Variable overhead 100% of direct labour dollars Manufacturing overhead rate 150% of direct labour dollars "General and administrative overhead, which is a fixed cost, is applied at 10 per cent of the total cost of material (or components), assembly labour and manufacturing overhead. Required: Consider the analysis prepared by RFT's engineering, manufacturing and accounting departments, and their recommendation to continue purchasing the pumps. Explain whether you think this analysis was correct? In your answer, include any supporting calculations you consider necessary