Spacely Sprockets, Inc., usually pays $1, 000 for a million flanges, which it uses as inputs in the manufacture of sprockets.It also spends an average of $20 per million flanges on finding manufacturers and negotiating contracts.Spacely is capable of making its own flanges at a cost of $980 per million.Given these costs,

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Spacely Sprockets, Inc. should start to manufacture its own flanges because the cost of making its own flanges is $980 per million, which is lower than the cost of contracting out for flanges plus the cost of finding manufacturers and negotiating contracts. By manufacturing its own flanges, Spacely Sprockets, Inc. can save $20 per million flanges, which adds up to significant savings over time.