Barstock Manufacturing incur costs of $7.50 ($4.50 variable and $3 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 10,000 of the assembly part for 5.00 per unit. If the order is accepted, Barstock will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Barstock will realize by buying the part.
1) Explain how the analysis is to be performed and
2) show all computations required to arrive at the correct answer.