For Problem #$5$: Make or Buy Decision:$$ A company makes a small engine for its products.$$ The company has the following costs per unit for each of the engine:

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Direct materials$$ $$9$

Direct labor$15$

Variable overhead$10$

Supervisor$$s fixed salary$2$

Allocated fixed overhead$4$

Total cost per unit$$$$40$

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An outside supplier has offered to sell $50,000$ small engines to the company at a price of $$2,000,000.$ The Supervisor$$s Salary is avoidable; that is$,$ the supervisor will not be needed if the parts are purchased from the outside supplier.$$ The Allocated overhead is unavoidable; that is$,$ the company will have the overhead costs regardless of whether it makes or buys the parts.$$

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Homework Problem #$5$:$$ Should the company make or buy the parts? Prepare a Make$/$Buy differential analysis to show if the company should continue to make in$-$house or buy from the outside supplier $($the analysis should be in the form of two Income Statements side$-$by$-$side, one for the Make decision and one for the Buy decision.

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