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Make or Buy
Blackspire Construction uses 200 units of "Golden Key N3" each month in the production of large specialty construction equipment. The cost to manufacture one unit of "Golden Key N3" is presented as follows:
Direct Materials	$320
Materials handling (10% of materials cost)	32
Direct labor	180
Manuracturing overhead (120% of direct labor cost)	216
Total Manufacturing Cost	$748
Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Blackspire's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Wellspring, one of Blackspire's reliable vendors, has offered to supply "Golden Key N3" at a unit price of $630
Required
1. If Blackspire Construction purchases the 200 "Golden Key N3" units from Wellspring, the capacity Blackspire used to manaufacture these parts would be idle. Should Blackspire make or buy the component? What is the cost difference per unit to buy the part?
2. Assume Blackspire Construction is able to rent all idle capacity for $25,000 per month. If Blackspire decides to purchase the 200 units from Wellspring, what is Blackspire's change in monthly cost for "Golden Key N3"?
3. Assume the rental opportunity does not exist. What is the minimum price Blackspire Construction would be willing to pay Wellspring if Blackspire requires a $15,000 savings a month before buying from an outside vendor?

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