Lindon Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $80,000 as follows:
| Direct Materials | $18,000 |
| Direct Labor | 20,000 |
| Variable Manufacturing Overhead | 12,000 |
| Fixed Manufacturing Overhead | 30,000 |
| Total Costs | 80,000 |
An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon stops producing the part internally, one-third of the manufacturing overhead would be eliminated.
Required:
Prepare a make or buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer.
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