Read and Answer the Required section:

Suppose a BMW executive in Germany is trying to decide whether the company should continue to manufacture an engine component or purchase it from Mainz Corporation for 50 deutsche marks (DM) each. Demand for the coming year is expected to be the same as for the current year, 200,000 units.

Data for the current year: Direct material = DM 5,000,000 Direct labor = DM 1,900,000 Factory overhead, variable = DM 1,100,000 Factory overhead, fixed = DM 2,500,000

Total costs = DM 10,500,000

If BMW makes the components, the unit costs of direct materials will increase 10%. If BMW buys the components, 40% of the fixed costs will be avoided. The other 60% will continue regardless of whether the components are manufactured of purchased. Assume that variable overhead varies with output volume.

Required: tabulate a comparison of the make-or-buy alternatives. Show totals and amounts per unit. Compute the numerical difference between making and buying. Assume that the capacity now used to make the components will become idle if the components are purchased. Would your evaluation of the options change if BMW had the opportunity to rent the idle capacity to a manufacturing company for DM 1,250,000 per year? How would it change?