Master Machine Corporation incurs the following estimated annual costs in making a subassembly for one of its products:
Total Cost for
20,000 units Unit Cost
Factory Overhead:
Variable $ 300,000 $15
Fixed $ 960,000 $48
Direct Labor $ 900,000 $45
Direct Materials $ 600,000 $30
Another manufacturer offers to sell Master Machine the same subassembly for $94 per unit for 20,000 units per year. Determine whether Master Machine should make or buy the subassembly, assuming that the plant capacity now used to make the subassembly would become idle if they were purchased and that $220,000 of the fixed factory overhead could be avoided by not making the subassembly.