Waterways has discovered that a small fitting it now manufactures at a cost of $1.00per unit could be bought elsewhere for $0.82per unit. Waterways has fixed costs of $0.20per unit that cannot be eliminated by buying this unit. Waterways needs488,000of these units each year.

If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately400of these units each year. The cost of the unit is $13.04. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,322, and the cost of producing the units would be $10.30a unit.