Question 3: Make versus buy You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $65 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows: cost per unit direct materials $20 direct labor $20 variable overhead $20 fixed overhead 520 total $80 If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY: MAKE BUY unit VC total vc If you outsource (BUY), the incremental revenue, costs, and profit are: how much each amount changes if you outsource Incremental revenue Incremental VC Incremental CM Incremental FC Incremental profit Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000). Should you outsource? O NO - outsourcing reduces profit by $5,000 YES - outsourcing reduces costs by $5,000