Part E43 is used in one of Ran Corporation's products. The company's Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year.

An outside supplier has offered to make the part and sell it to the company for $14.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, these allocated general overhead costs would be avoided.

a. Should the company buy the part or continue making it? What is the monetary advantage or disadvantage of the decision? Show your work!

b. The space vacated by buying the part could be used to manufacture part a new product that would generate profits of $45,000 annually. Should Ran buy E43 and produce the new product? What would be the economic advantage or disadvantage?