5 Phobos Ltd manufactures metal widgets. On average it produces and sells 900,000 widgets per year. The factory can manufacture a maximum of 1,000,000 widgets per year. The widgets normally sell for $30 each. The variable cost to produce one widget is $20. The fixed costs per year are as follows: Fixed overhead Administration $500,000 $200,000 $700,000 Consider the following independent scenarios: Scenario A Triton Ltd has approached Phobos Ltd to purchase 300,000 widgets. As this is an unusually large order, Triton Ltd is requesting for a 10% discount on the normal selling price per widget. They have also requested for all of the widgets to be modified to include the logo of their company. This will incur an additional $0.20 variable cost per unit. In addition, fixed overhead costs will increase by 5%. An engraving machine costing $40,000 would need to be purchased in order to print the initials of Triton Ltd on the widgets. Phobos Ltd does not expect any further use of this machine, and it is to be disposed of for 20% of its purchase price. Scenario B Chiron Ltd has approached Phobos Ltd to produce all 900,000 widgets for the entire year for $20.20 per unit. As the buy option includes all necessary manufacturing, packaging and transportation costs, Phobos Ltd can reduce its fixed overhead costs by $100,000. In addition, administration costs will decrease to $180,000. Delivery costs of $0.05 per widget will need to be incurred, and a despatch employee at $1,500 per month will be required. Required: a) For Scenario A: (i) Calculate the incremental benefit (or cost) of the special order. (3 marks) (ii) Should Phobos Ltd accept the special order? Discuss quantitative and qualitative factors. (2 marks) b) For Scenario B: (i) Prepare a table to compare the costs of the make and buy options. (3 marks) (ii) Should Phobos Ltd continue manufacturing the widgets or buy them from Chiron Ltd? Discuss quantitative and qualitative factors. (2 marks)