Problem:
Knox Manufacturing incurs unit costs of $15 ($9 variable and $6 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,000 of the assembly part at $11 per unit. If the offer is accepted, all variable costs and $1 of fixed costs per unit will be saved.
Instructions:
(a) Prepare an analysis to show whether Knox Manufacturing should make or buy the assembly part.
(b) Would your answer be different if Knox could earn $25,000 of income with the facilities currently used to make the part?