Answer and Explanation:
The preparation of the financial impact is shown below:
Particulars Make Buy
Direct Material (7,400 × $7.50) $55,500
Direct Labor (7,400 × $4.20) $31,080
Variable overhead (7,400 × $8.30) $61,420
Supervisors salary (7,400 × $3.20) $23,680
Depreciation on special equipment $0 $0
General overhead $3,400
Purchase cost (7,400 × $27) $199,800
Opportunity cost $(18,000)
Total Annual Cost $175,080 $181,800
b. As we can see that the total annual making cost is $175,080 and the total annual buying cost is $181,800 which increase the cost by $6,720. So in this case the company should make the product rather than buying them
