ABC Ltd manufactures 8,000 units of part air conditioner each year for use on its production line. At this level of activity, the cost per unit for part air conditioner is as follows:

Direct materials $2.80

Direct Labour 11.00

Variable overhead 2.20

Fixed overhead 10.00

Total cost per part $26.00

An outside supplier has offered to sell 8,000 units of part air conditioner eahc year to ABC products for $22 per part. If ABC accepts this offer, the faciliteis now being used to manufacture part air conditioner could be rented to another company at an annual rental of $40,000. However, ABC has determiend that 80% of the fixed overhead being applied to part air conditioner would continue even if part airconditioner were purchased from the outside supplier.

(a) prepare an analysis to show the net dollar advantage or disadvantage of accepting the outside supplier's offer.

(b)explain what assumptions about cost behaviour are required to be made to allow the above analysis to be performed.