2 (2.5 Marks) Umair Company produces 3,000 children's bicycles each year. The company is considering the purchase of fidget spinners from an outside supplier. This outsourcing would enable the company to increase its production and sales (in units) by 15%. The company would pay the vendor Rs.6,000 for 2 fidget spinners, whereas it now costs Rs.5,200 to produce the 2 fidget spinners. Variable manufacturing costs (excluding the fidget spinners) are Rs.2,800 per bicycle when the company produces the fidget spinners in-house, but would decrease to Rs.2,600 per bicycle if the fidget spinners were outsourced. Other unit variable costs (administrative and selling) would remain at Rs.8,000. Fixed manufacturing costs are Rs.30m and fixed administrative costs are Rs.6m. The fixed costs would not change with outsourcing. The company sells all the bicycles for Rs.28,000 each. What would be the increase or decrease in net income if the fidget spinners are outsourced? Question 3 [4 Marks] The Enem Company is considering dropping its Optimist toy due to continuing losses. Revenue and cost data on the toy for the past year follow: Sales of 15,000 units 150,000 Variable expenses 120000 Contribution margin 30,000 Fixed expenses Net operating loss 40,000 (10,000) If the toy were discontinued, then Enem could avoid Rs.17,500 per year in fixed costs. (a) What would be the change in annual operating income from discontinuing the production and sale of Optimists? (1.5 Marks) (b) At what level of annual sales of Optimists (in units) should Enem be indifferent to discontinuing Optimists or continuing the production and sale of Optimists? (1 Mark) (c) Suppose that if the Optimist toy is dropped, the production and sale of other Enem toys would increase so as to generate a Rs.16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the change in annual operating income from discontinuing the production and sale of Optimists would be: (1.5 Marks)