Swartz Boats Company currently produces a battery used in manufacturing its boats. The company annually manufactures and sells 5,000 units of a particular model of fishing boat. Because of the low volume of activity, Swartz is unable to obtain the economies of scale that larger producers achieve. For example, the costs associated with producing the batteries it uses are almost 30 percent more than the cost of purchasing comparable batteries. Swartz could buy batteries for $516 each; it costs $660 each to make them. A detailed breakdown of current production costs for the batteries follows:
Item Unit Cost Total
Unit-level costs:
Materials...............................$240..................$1,200,000
Labor....................................150......................750,000
Overhead.................................30.....................150,000
Allocated facility-level costs.........240...................1,200,000
Total....................................$660..................$3,300,000
Based on these figures, Swartz' president asserted that it would be foolish for the company to continue to produce the batteries at $660 each when it can buy them for $516 each.
Required
Do you agree with the president's conclusion? Support your answer with appropriate computations.