Brief Exercises: Set A Brief Exercise 8-16. Structuring a Make-or-Buy Problem Objective 2 . Example 8.1 Fresh Foods, a large restaurant chain, needs to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost infor- mation on internal production includes the following: Total Cost Unit Cost Direct materials $25,000 $ 5.00 Direct labor 15,000 3.00 Variable manufacturing overhead 7,500 1.50 Variable marketing overhead 10,000 2.00 Fixed plant overhead 30,000 6.00 Total $87,500 $17.50 Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of pur- chasing will be incurred beyond the pur- chase price.Required: 1. What are the alternatives for Fresh Foods? 2. List the relevant cost(s) of inter- nal production and of external purchase. 3. Which alternative is more cost ef- fective and by how much? 4. Now assume that 20% of the fixed overhead can be avoided if the in- gredient is purchased externally. Which alternative is more cost effect tive and by how much?Brief Exercises: Set B Brief Exercise 8-26. Structuring a Make-or-Buy Problem Objective 2 . Example 8.1 Coed Scents, a national producer of young adult perfumes and colognes, needs to determine if it would be cheaper to produce 100,000 bottles of its most popular perfume, Two AM, for sale in its college town shops or to purchase them from an outside supplier for $25 each. Cost information on internal pro- duction includes the following: Total Cost Unit Cost Direct materials $2,000,000 $20.00 Direct labor 350,000 3.50 Variable manufacturing overhead 150,000 1.50 Variable marketing overhead 250,000 2.50 Fixed plant overhead 300,000 3.00 Total $3,050,000 $30.50Fixed overhead will continue Whether Two AM is produced internally or exter- nally. No additional costs of purchasing will be incurred beyond the purchase price. Required: 1. What are the alternatives for Coed Scents? 2. List the relevant cost(s) of inter- nal production and of external purchase. 3. Which alternative is more cost ef- fective and by how much? 4. Now assume that Coed Scents' in- ternal audit team learned through a special data analytics project that in- tellectual property theft is a signifi- cant threat for outsourced produc- tion. The team estimates that if Coed Scents outsources its production, it will need to spend $350,000 to man- age intellectual property theft of its Two AM brand by competitors oper- ating in the country where the out- sourced production occurs. Which alternative is more cost effective and by how much