wanson Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Swanson that a 20 percent increase will take effect next year.Swanson has some additional space and required facilities and could produce the units for the following per-unit costs (based on 30,000 units):

Direct materials $16

Direct labour12

Variable overhead12

Fixed overhead 10

If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred.In addition, the facilities can be rented out for $20,000 per year if the parts are purchased externally.

Required:

Should Swanson Company buy the part externally or make it internally?Explain with detailed calculations.

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