Nelson Car Audio needs 500 amplifiers to complete this month’s car stereo shipment. If Nelson buys rather than makes the amplifiers, some of the facilities still cannot be used in another manufacturing activity. Twenty-five percent of the fixed manufacturing overhead costs are indirect and will still be incurred regardless of which decision is made. The per-unit costs of making and buying the amplifiers are:
Cost to make the amplifier:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
..................................$170
Cost to buy the amplifier from another company . . . . . . . . . . . . . . . . . . . . . . . . $160
Identify the differential costs of making the amplifier as a basis for deciding whether to make or buy it.