ABC manufactures and sells bakery products and has decided to put a new product on the market: an ice cream cake. The price of each cake will be $8. The company will use its excess capacity to manufacture the product. The accounting department has decided that $100,000 worth of fixed overhead costs should be allocated to the product. The accounting department has budgeted the following costs (based on production of 100,000 boxes): Direct materials (per box): $3.00 Direct labour (per box): $2.00 Fixed and variable overhead (per box): $1.50 ABC can purchase ice cream units, one of the ingredients, from a dairy company. The dairy company would sell the ice cream for $0.90 (ingredients for one cake). If ABC buys the ice cream units from the dairy company, direct labour and variable overhead costs would be reduced by 10%. The direct materials costs would be 20% lower than the original budgeted amount and would not include the cost of the ice cream units purchased from the dairy company. Required 1. Should ABC make or buy the ice cream? Explain your decision. 2. Calculate the maximum amount that ABC should pay for the ice cream. 3. Suppose that sales projections are revised and that ABC could sell 125,000 cakes instead of 100,000. In such a case, to produce ice cream, it would need to lease a new machine for $10,000 per year. Under these conditions, should ABC make the ice cream or buy them from the dairy company? Show your calculations. 4. Suppose that sales projections are revised and that ABC could sell 125,000 cakes instead of 100,000, and that it would need to lease the machine. Would it be better off if it makes the ice cream for the first 100,000 cakes and buys the remainder from the dairy company? Explain your decision. Assume the $0.90 price is available for any volume.