The companys Accounting Department reports the following costs of producing 16,000 units of the wheels internally each year:

Per Unit 16,000 Units

Direct Materials 12 192,000.00

Direct Labor 8 128,000.00

Variable overheads 2 32,000.00

Supervisor's Salary 6 96,000.00

Depreciation of Special

Equipment 4 64,000.00

Allocated General overhead 10 160,000.00

Total Cost 42 672,000.00

An outside supplier has offered to sell 16,000 wheels a year to Toronto Cycles for a price of $38 each, or a total of $608,000 (= 16,000 wheels $38 each).

Special equipments used in production was bought 5 years back and do not have any resale value now.

The supervisor is specifically hired to supervise the production of wheels, thus is relevant and avoidable if wheels are bought from outside.

Requirement:

Should the company stop producing the wheels internally and buy them from the outside supplier?