Arches Manufacturing had always mode its components in-house. However, Canyonlands Component Works had recently offered to supply one component, OA, at a price of $51 each. Arches uses 12,000 units of component DA each year. The cost per unit of this component is as follows: Assume that 80% of Arches Manufacturing's fixed overhead for companemt DA would be eliminated if that component were no longer produced. Requlred: 1. Conceptual Connection: If Arches decides to purchase the component from Campohlands, by how much will operating inceme increase or decrease (as compared to making the component in-house)? s. Which alternative is better? 2. Conceptuar Connectiont Brifly explain how incressing or decreasing the soth figure affects Arches's final decivion to make or purchase the component. As the percentage of avoidsble fixed cost increases (above Bonb), total relevant costs of making the component increase, causino the "purchane" decision to be 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much wilt operating income increase or decrease (as compared to making the component in-house)? 5 Which alternative is better? 2. Conceptual Connection: Breffy explain how increasing or decreasing the sos figure affects Arches's final decision to make or purchase the component. As the percentage of avoldable fred cost increases (obove 80% ), total relevant costs of making the component increase, causing the "purchase" decision to be financially appealing (compared to the "make" option) than it was when the percentage was 80%. In other words, as the percentage increases, difference between the "purchase" and "make" options increases resulting in the "purchase" decision being even attractive. Aternatively, as the percentage of avoidable fixed costs decreases, the "make" ootion eventually is costy and appealing financially as the "purchase" option. Finally, as the percentage of avoidable fixed cost decreases low enough and the total relevant costs of making the component decrease, the option becomes the more financially appealing eption 3. Conceptual Connection: By what dolfar amount would the perrunt relevant fared cost have to decrease before Arches would be indifferent (L.e., incur the same cost)