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Item $6$

Exercise $21\mathrm{.}7($Static$)$ Make or Buy Decision $($LO$21-1,$ LO$21-2,$ LO$21-3,$ LO$21-4)$

Bacrometer, Incorporated, makes a small cooling fan on one of its production lines. Each month the company produces $5,000$ of these fans at a variable cost of $$9$ per unit. Bacrometer received a bid from another manufacturer to provide these fans for $$10$ per unit. Bacrometer knows the production line could be rented to another manufacturer for $$7,500$ per month. Fixed costs associated with the production line will remain unchanged regardless of the company$$s decision.

Required:

Compute the incremental cost to make with the incremental cost to buy. Remember the incremental cost to make includes the opportunity cost of the foregone rent revenue.

Should Bacrometer continue to make these fans?