The screens for mobile phones are currently purchased from an outside supplier at a cost of $40 each by Futuristic Phones Ltd. The company is concerned about the quality of the screens it is buying as one in a 500 is found to be faulty within a year of using them to make mobile phones.

If the company decides to manufacture the screens, it would have to purchase new machines at a cost of $9000000. The new machinery would enable the company to produce its annual requirement of 600000 screens and would have to be scrapped at the end of a 5-year useful life. The following costs per unit would be required to produce the screens (excluding the cost of the new machinery):

Direct materials Direct labour Variable factory overhead Fixed factory overhead – allocated		$10 6 12  20
Total		$48

The allocated fixed factory overhead would be a reassignment of existing costs based on estimated sales volume.

Required

Should the company make or buy the screens for the mobile phones? Explain why.