Caballero Manufacturing incurs unit costs of $15 ($10 variable and $5 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 20,000 of the assembly part at $13.75 per unit. If the offer is accepted, Caballero will save all variable costs but no fixed costs.
Instructions: Part A) Prepare an analysis showing the total cost savings, if any, Caballero will realize by buying the part. Caballero Company should the part because total annual costs to make are than total costs to buy.