Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 11

MAKE-OR-BUY, TRADITIONAL ANALYSIS
Saccamano Company is currently manufacturing Part KAV-71, producing 35,000 units annually. The part is used in the production of several products made by Saccamano. The cost per unit for KAV-71 is as follows:

Of the total fixed overhead assigned to KAV-71, $12,950 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part KAV-71), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Saccamano for $64. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.
Required:
1. Should Saccamano Company make or buy Part KAV-71?
2. What is the maximum amount per unit that Saccamano would be willing to pay to an outside supplier?