This is a make or buy problem that has all of the characteristics illustrated in the Make or Buy lectures and related study problems. Note that you are not asked for the total make costs and the total buy costs, but instead, the difference between these two total cost computations. Make sure that you read the question carefully so that you attach the correct sign (+ or -) to your numerical answer. ______________________________________________________

Lynn Hart is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Hart has been asked to evaluate whether Paibec should continue to manufacture part MT-RF or purchase it from Marley Company. Marley has submitted a bid to supply the 37,000 MT-RF units that Paibec will need for 2011 at a price of $16.40 each. Paibec has capacity available to produce the 37,000 units.

From plant records and interviews with John Porter, the plant manager, Hart gathered the following information regarding Paibec's costs to manufacture 34,000 units of MT-RF in 2010:

Direct materials	$210,800
Direct labor	136,000
Plant space rental	83,000
Equipment lease	36,000
Other overhead	244,800
Total	$710,600

Additionally, Porter tells her:

Variable costs per unit in 2011 will be the same as variable costs per unit in 2010.

If MT-RF is purchased from Marley, plant space will not have to be rented, and equipment will not have to be leased. But these are annual contracts that are going to be expensive to wiggle out of. Porter estimates it will cost $10,500 to terminate the plant rental contract and $5,000 to terminate the equipment lease contract.

60% of the other overhead is fixed and is expected to remain the same whether MT-RF is manufactured by Paibec or outsourced to Marley. The variable component of other overhead is proportional to production.

Hart is aware that cost studies can be threatening to current employees because the findings may lead to reorganizations and layoffs. She knows that Porter is concerned that outsourcing MT-RF will result in some of his close friends being laid off. Therefore, she performs her own independent analysis of competitive and other economic data, which reveals that:

Direct materials and direct labor wage rates are likely to be higher by 8% and 4%, respectively, in 2011 compared to 2010.

The plant rental and equipment lease contracts can, in fact, be terminated by paying $9,500 and $4,000, respectively.

Paibec can actually save $20,000 of the fixed portion of other overhead costs if MT-RF is purchased from Marley.

REQUIRED [Note: Round unit cost computations to the nearest cent]

Based on Hart's estimates, by how much will Paibec's profits change if MT-RF is purchased from Marley? (Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.)