Answer the following

Quiz 4 Problem I (Make or Buy): Tarlac Corporation is now making a small part that is used in one of its products. The company's accounting department reports the following per unit costs of producing the part internally: Direct Materials P15.00 Direct Labor 10.00 Variable Manufacturing Overhead 2.00 Fixed Manufacturing Overhead, traceable 4.00 Fixed Manufacturing Overhead, allocated 5.00 Depreciation of special equipment represents 75% of the traceable fixed manufacturing overhead cost with supervisory salaries representing the balance. The special equipment has no resale value and does not wear out through use. The supervisory salaries could be avoided if production of the part were discontinued. An outside supplier has offered to sell the part to Tarlac Corporation for P30 each, based on an order of 5,000 parts per year and Tarlac will be incurring an additional P2 per unit for quality inspection of incoming parts. Required: 1. Should Tarlac accept this offer, or continue to make the parts internally? 2. Assuming that if Tarlac accept the offer it will have enough idle capacity to produce another product that will have a contribution margin of P 15,000, should Tarlac accept the offer or continue to make the parts internally