Aquarius Limited manufactures bicycles. This year's expected production is 10,000 units. Currently, Aquarius makes the chains for its bicycles. Aquarius'management accountant reports the following costs for making the 10,000 bicycle chains:

Picture of table attached

Aquarius has received an offer from an outside vendor to supply any number of chains Aquarius requires at $8.20 per chain. The following additional information is available:

- Inspection, setup and materials handling costs vary with the number of batches in which the chains are produced. Aquarius produces chains in batch sizes of 1,000 units. Aquarius will produce the 10,000 units in 10 batches.

- Aquarius rents the machine used to make the chains. If Aquarius buys all its chain from the outside vendor, it does not need to pay rent on this machine.

(a)Assume that if Aquarius purchases the chains from the outside vendor, the facility where the chains are currently made will remain idle (i.e. not used). On the basis of financial factors alone, should Aquarius accept the outside vendor's offer at the anticipated production (and sales) volume of 10,000 units?

(b)Explain two (2) qualitative factors that Aquarius should consider in making the above decision.

. Costs for 10,000 Cost per unit . units Direct materials $4.00 $40,000 Direct manufacturing $2.00 20,000 labour Variable manufacturing $1.50 15,000 overhead (power and utilities) Inspection, setup, 2,000 materials handling Machine rent 3,000 Allocated xed costs of 30,000 plant administration, taxes and insurance TOTAL COSTS $110,000