Lindon Company utilizes 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 shown:
Direct materials...............................................$18,000
Direct labor......................................................20,000
Variable manufacturing overhead................... 12,000
Fixed manufacturing overhead....................... 30,000
Total costs.......................................................80,000
The outside supplier has offered to give Part X at a price of $13 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be removed.
Required: Make a make-or-buy analysis exhibiting the annual benefit or drawback of accepting the outside supplier's offer.