Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20 percent increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
Direct materials $16
Direct labor 12
Variable overhead 12
Fixed overhead 10
Total $50
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required:
Should Junior Company buy the part externally or make it internally?