Caballero Manufacturing acquires unit costs of $15 ($10 variable and $5 fixed) in making a sub-assembly part for its finished product. The supplier offers to make 20,000 of the assembly part at $13.75 per unit. When the offer is accepted, Caballero will save all the variable costs however no fixed costs.
Instructions:
Part A: Make an analysis showing the total cost savings, if any, Caballero will realize through buying the part.
Part B: Caballero Company must _________ the part as total annual costs to make are _________ than the total costs to buy.