Problem: Starwood Aviation produces an executive jet for which it currently manufactures an airflow lever. The cost of each lever is indicated below:
Variable costs
Direct material $300
Direct labor 200
Variable overhead 150
Total variable costs $650
Fixed costs
Depreciation of equipment 120
Depreciation of building 80
Supervisory salaries 140
Total fixed costs 340
Total cost $990
The company has an offer from Lans Levers to produce the part for $700 per unit who is able to supply the 600 levers needed in the coming year. If the company accepts this offer and shuts down production of levers, supervisors will be reassigned to other areas needing their services. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the lever can be used y another production group that is currently leasing space for $25,000 per year. Prepare a single column incremental analysis in good form to determine if the company should make or buy the lever.