Viper Disks currently manufactures the disk drives that it u…
Viper Disks currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows: Cost per Drive Direct Materials $12 Direct Labor 2 Variable Manufacturing Overhead 5 Fixed Manufacturing Overhead 7 Total $26 Wango Electronics has offered to provide Viper with all of its disk drive needs for $27 per drive. If Viper accepts this offer, Viper will be able to use the freed up space to generate an additional $40,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this decision. Based on this information, would Viper be financially better off making the drives or buying the drives from Wango and by how much?