Appendix Four (Make or Buy) Objective: Since the demand for packaging material will be high, CC is exploring the possibility of buying the packaging materials from an outside supplier or buying an equipment to produce them inhouse. Scenario: A new printing and fabrication equipment can be bought for $2,000,000. The equipment would have a five-year useful life and $ 500,000 salvage value. Alternately, an outside supplier has offered to supply the package material at $ 100 per skid under a five-year contract. The cost card for the packaging material is as under for the current level of activity of 40,000 skids Item Direct materials Direct labour Overhead Total cost per unit Amount $ 40.00 $ 40.00 $ 60.00 $ 140.00 Breakdown of overhead cost is as under: Supplies Supervision Depreciation General Overhead $ 10.00 10.00 15.00 25.00 Supervision is directly traceable to manufacturing activity. The new equipment would reduce direct labour and the supplies component of variable overhead by 25%. Supervision cost will increase by 20 %. Direct materials would not be affected by the installation of the new equipment. General overhead will remain unaffected and there is no opportunity cost for the space currently available. Depreciation of the equipment will be due to usage of the equipment. Methodology: The group would analyze the net advantage or disadvantage of buying the equipment. WAT has internal funds to buy the equipment and would not need to borrow