Rand Corporation produced 1,000 units of a special component part with the following costs:

Direct Materials $14.00

Direct Labor 26.00

Variable Overhead 12.00

Fixed Overhead 18.00

An international supplier offer to sell the 1,000 units for $6,500. If Rand Corporation purchases the component from the supplier, one-third of the fixed costs will be eliminated. Should Rand make or buy the components?

a. Buy; savings = $500.

b. Make; savings = $700.

c. Make; savings = $6,430.

d. none of the above

NOTE: Please explain how.