Ellen currently makes part y-7 which is used to make a lawnmower they manufacture and sell. Following are the costs to make the product. They use 10,000 parts a year.
Direct Material $12
Direct Labor 18
Variable Overhead 6
Fixed Overhead is $80,000
Of the $80,000, $50,000 is avoidable if we buy the part. Also, we can rent the area used to make the part for $25,000. The part can be bought for $40 and will meet our quality requirements. What is the difference between buying and making?