SJM manufactures all of the components to make their defibrillators; however, the new factory supervisor has recommended that one component be purchased from an outside supplier in order to save money. The total costs to produce the component internally are as follows:

Total cost Cost per unit

Direct materials $180,000 $90

Direct labour 60,000 30

Variable overhead 200,000 100

Fixed overhead 220,000 110

Total $660,000 $330

The component can be purchased from an outside supplier for $248 per unit. Fixed costs will continue whether the components are produced internally or purchased from an outside supplier. No additional costs of purchasing will be incurred besides the purchase price.

Required: Which alternative (make or buy) is more cost effective? Calculate the amount by which it is more cost effective.