1. Washington Company calculated that the cost to manufacture part Q43 is comprised of the following:

Materials $97

Variable overhead 25

Variable labour 53

Fixed overhead 22

Another company has offered to make part Q43 for $125.

If Washington has spare capacity and will retain its highly-skilled workforce no matter which decision is made, identify whether it should make or buy the component. Be sure to show all calculations.

2. Pizza Planet employs a full-time driver and pays the costs for a delivery vehicle to deliver pizza to its take-out customers. Rapid Delivery has offered to make these deliveries with the same service standard for a fixed sum of $2,650 per month. Pizza Planets annual costs are as follows:

Salary and costs of driver $23,350

Registration, insurance & service - automobile 3,500

Fuel 2,750

Depreciation automobile 2,900

Total annual cost $32,500

If Pizza Planet outsources delivery to Rapid Delivery, it will terminate the drivers employment without any severance payments.

a) Should Pizza Planet subcontract its delivery service to Rapid Delivery?