1. Watson, Inc., manufactures a variety of heavy equipment. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell engines for $205 per unit. To evaluate this offer, Watson, Inc., has gathered the following information relating to its own cost of producing the engine internally:

	Per Unit	200 Units per Year
Direct materials	$ 100	$ 20,000
Direct labor	60	12,000
Variable manufacturing overhead	30	6,000
Fixed manufacturing overhead, traceable	10*	2,000
Fixed manufacturing overhead, common, but allocated	25	5,000
Total cost	$225	$45,000

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Assuming that the company has no alternative use for the facilities now being used to produce the engine,(Fixed manufacturing overhead, common will be paid anyway), should the outside suppliers offer be accepted? Show all computations. (3pts)