Question 5 - Make versus Buy (25 points) Bahar produces a single product. The cost of producing and selling a single unit of this product this at the company's normal activity level of 43,000 units per month is as follows: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Shipping Expense Fixed Selling and Administrative Expense Per Unit $44.10 $8.40 $ 1.40 $17.90 $ 2.40 $11.00 The normal selling price of the unit is $92.10. Business is growing and monthly sales are expected to grow by 5,000 units. A reputable firm on the west coast has offered to produce the 5,000 units at a cost of $58 per unit. Shipping costs per unit sold would be reduced by $0.50 per unit for any production on the west coast. 1. (10 points) Suppose Etaha has sufficient idle capacity to produce the additional units. Should the company make or buy the additional 5,000 units? 2. (10 points) What if the company only had enough excess capacity to produce an additional 1.300 units and the west coast firm would only sell the full 5,000 units. Expansion would require an additional monthly manufacturing cost of $20,000 if the additional product is to be made in-house. What is the financial advantage (disadvantage) for the company if buys from the west coast supplier? 3. (5 points) What other non-financial factors must be considered in a make versus buy decision