Talk Company manufactures 25,000 telephones per year.The full manufacturing costs per telephone are as follows:

Direct materials$6

Direct labor20

Variable manufacturing overhead10

Average fixed manufacturing overhead11

Total$47

The Telecom America has offered to sell Talk Company 25,000 telephones for $35 per unit.If Talk Company accepts the offer, $260,000 of fixed overhead will be eliminated.

Required:

Applying differential analysis to the situation, should Talk Company make or buy the phones? For full credit (or partial credit if you make a mistake) you must show your calculations and label things clearly so I know what you are doing.