Crosby Inc. makes 4,000 holders per year for use in its skates. The holder houses the blade and attaches to the outsole of the skate boot. Data concerning the unit production costs of the holder follows:

Direct Materials $35

Direct Labour 10

Variable Manufacturing Overhead 8

Fixed Manufacturing Overhead ($11 general company

overhead, $4 depreciation, and $5 direct supervision) 20

Total Cost per unit $73

An outside supplier has offered to sell Crosby Inc. all the holders it requires.

Required:

1. Assume Crosby Inc. has no alternative use for the facilities presently devoted to production of the holders. If the outside supplier offers to sell the holders for $65 each, should Crosby Inc. accept the offer? Support your answer with appropriate calculations. (6 marks)
2. Assume that Crosby Inc. could use the facilities presently devoted to production of the holders to expand production of another skate part that would yield an additional contribution margin of $80,000 annually. Should Crosby Inc. accept the offer? (3 marks)