Skye Company needs 20,000 parts to use in its production cycle. Steelers Inc. has offered to sell the parts to Skye for $44 per unit. However, 60% of Skyes fixed overhead would still continue regardless of the decision made. The costs for Skye to make the part (per unit) are:

Direct materials $12

Direct labour $26

Fixed overhead $10

What decision should Skye take?

• Buy part, resulting in $120,000 cost advantage

• Buy part, resulting in $80,000 cost advantage

• There is no difference in costs whether to make in-house or buy from external source

• Make part, resulting in $120,000 cost advantage

• Make part, resulting in $40,000 cost advantage.