TM 12-6 MAKE OR BUY DECISION A decision concerning whether an item should be produced internally or purchased from an outside supplier is called a "make or buy" decision. EXAMPLE: Essex Company is presently making a part that is used in one of its products. The unit product cost is: $9 5 Direct materials Direct labor Variable manufacturing overhead Depreciation of special equipment Supervisor's salary General factory overhead** Total unit product cost 2 10 $30 * The special equipment has no resale value. x* Common costs allocated on the basis of direct labor-hours. The costs above are based on 20,000 parts produced each year. An outside supplier has offered to provide the 20,000 parts for only $25 per part. Should this offer be accepted