Buddy Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 13,500 of these toy pets is as follows:

Direct materials ($35 per pet)	$472,500
Direct labour ($29 per pet)	391,500
Variable overhead ($13 per pet)	175,500
Allocated fixed overhead ($23 per pet)	310,500
Total	$1,350,000

Buddy Pets is approached by Maxum Inc., which offers to make the toy pets for $88 per unit.

Using incremental analysis, determine whether Buddy Pets should accept this offer under each of the following independent assumptions:

1.a) Prepare an incremental analysis. Assume that $135,000 of the fixed overhead cost (in making 13,500 of the toy pets) is avoidable.

1.b) Should Buddy Pets continue to make the pets or buy the pets?

2.a) Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Maxum, Buddy Pets can used the released productive resources to generate additional income of $216,700.

2.b) Should Buddy Pets continue to make the pets or buy the pets?