Bangor Industries makes staplers. It currently buys the parts that make up the casing of the stapler, only producing the internal mechanicals. It makes and sells 5,000,000 staplers per year. Recently, Tom Burns, manufacturing vice president, has been looking into the potential to make all of the parts that would go into the product. It currently pays $1.25 for the outer parts. The company could buy a used machine to make these parts for $24,000. The machine would have a four-year life. It would require four workers, paid $15 per hour to operate it for 2,000 hours per year. Materials would cost $1. Overhead would be 25% of labor.

REQUIRED:

a. Perform an incremental analysis of this opportunity for Bangor. Do the analysis in total dollars for the year under each alternative.

b. Should it make or continue to buy this part? Why?