Snow Corporation manufactures freezers for residential use. The company is planning to produce a new freezer suitable for apartments. These smaller freezers require a component that Snow Corporation can either make or buy from a subcontractor. The subcontractor will sell the part for $\$ 46$. The costs for making 12,000 units of the part are as follows:

Direct materials

$\$ 20$ per unit Direct labor $\$ 15$ per unit Variable manufacturing overhead $\$ 10$ per unit Fixed manufacturing overhead $\$ 40,000^{*}$

*The $\$ 40,000$ fixed manufacturing overhead includes $\$ 24,000$ of indirect fixed costs allocated to the part and $\$ 16,000$ for a production manager.

}

If the part is produced. Snow corporation will use an idle machine it alreads owns. If the part is bought, the company plans to rent the machone and the lactory space to another company for $\$ 8,000$ and $\$ 14,000$ a year, respectively Snow expects that, if the part is produced. the compan! will be able to shedule production so that no warehouse space will be necded However of the pan is bought. Snow will need to use warehouse space. for which it will have to pa! $\$ 2 .($ m a year in rent.
1. Identify any opportunity costs relevant to) the decision to makic or bus the component.
2. Determine the differential costs of making the product 3. Determine the differential costs of buying the product.
4. Interpretive Question: Would you recommend that Snow make or buy the component? Why?