Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:

Direct materials

$2.00

Direct labour

$4.00

Variable manufacturing overhead

4.00

Fixed manufacturing overhead

$1.00

Total cost

$11.00

The fixed overhead costs are unavoidable.

1.Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $11 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do?

a.Make the part and save $1 per unit.

b.Make the part and save $3 per unit.

c.Buy from Erickson and save $1 per unit.

d.Make the part and save $5 per unit.