Pharoah Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making an assembly part for its finished product. A supplier offer to make 18,800 of the assembly part at $5 per unit. If the offer is accepted, Pharoah will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, that pharoah will realize by buying the part.

Make Buy Net Income Increase (Decrease)

Variable manufacturing costs

Fixed manufacturing costs

Purchase price

Total annual cost