cost analysis

Question 2. Y Company manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. The company currently manufactures all the parts used in these engines but is considering a proposal from an external supplier who wishes to supply the starter assemblies used in these engines. The starter assemblies are currently manufactured in Division 3 of Y Company. Over the past year, Division 3 Page 1/3 manufactured 150.000 starter assemblies. The costs relating to the starter assemblies for the past 12 months were as follows: Further analysis of manufacturing overhead revealed the following information. Of the total manufacturing overhead, only 25% is considered variable. Of the fixed portion, 150.000$ is an allocation of general overhead that will remain unchanged for the company as a whole if production of the starter assemblies is discontinued. A further 100.000$ of the fixed overhead is avoidable if production of the starter assemblies is discontinued. The balance of the current fixed overhead, 50.000 \$, is the division manager's salary. If production of the starter assemblies is discontinued, the manager of Division 3 will be transferred to Division 2 at the same salary. This move will allow the company to save the 40.000$ salary that would otherwise be paid to attract an outsider to this position