Reference no: EM131761607

Problem - Starwood Aviation produces an executive jet for which it currently manufactures an airflow lever. The cost of each lever is indicated below:

Variable costs

Direct material                                  $300

Direct labor                                        200

Variable overhead                            150

Total variable costs                                             $650

Fixed costs

Depreciation of equipment            120

Depreciation of building                 80

Supervisory salaries                         140

Total fixed costs                                                   340

Total cost                                                               $990

The company has an offer from Lans Levers to produce the part for $700 per unit and is able to supply the 600 levers needed in the coming year. If the company accepts this offer and shuts down production of levers, supervisors will be reassigned to other areas needing their services. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the lever can be used by another production group that is currently leasing space for $21,000 per year. Should the company should make or buy the lever? Why?

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