D&D Machinery has been making a part for its industrial rotary gear shaving machine. D&D engineers are asked to investigate alternative ways of obtaining the part, as the unit cost for the part currently is not competitive in the marketplace. D&D needs 25,000 parts per year for the next three years. At that point, any capital equipment could be sold. D&D’s tax rate is 40%, and its MARR is 12%.

• Option A: Continue to produce the part with the old machine. The machine has been fully depreciated. The current machine could be sold for $6,000 in three years. Making the part with the old machine involves the following: Variable costs for the part are $4 for direct materials, $3 for direct labor, and $2 for variable manufacturing overhead.
• Option B: Purchase the part from outside for $13 per part, including shipping.
• Option C: Replace the old machine with the new model. The newer model would cost $55,000 and would depreciate according to a seven‐year MACRS method. The new machine, if purchased, could be sold for $15,000 in three years. It would cut direct labor costs to $1.50 per unit and variable costs to $0.75 per part. If the new model is acquired, the old machine would be sold for $25,000.

(a) When Option B is compared with Option A, determine the break‐even outsourcing unit cost.
(b) When Option B is compared with Option C, determine the break‐even outsourcing cost per unit.
(c) Which alternative is the most economical?