2. Willy Company has been purchasing a component, Part A25 for $38.40 per unit. Willy is currently operating at 80% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part A25 is estimated as follows:

Direct materials $23.00

Direct labor 9.00

Variable factory overhead 2.24

Fixed factory overhead 6.30

Total $40.54

1. Should Willy Company buy part A25 externally or make them internally? Prepare differential analysis to support your decision.
2. If Willy Company can rent the production facility to Terry Company for $300,000 when they purchase part A25 externally, should Willy Company buy part A25 externally or make them internally? Prepare differential analysis to support yourdecision.