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JFK Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows:
Direct materials
$ 45,000
Direct labor
50,000
Variable overhead
40,000
Fixed overhead
45,000
Total cost
$180.000
An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy?
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