deal with it

QUESTION I Otto Manufacturing Company sells eloctric fan. The estimated annual sales and production volume would be 8,000 units. Based on 8,000 units, the accounting department has developed the following costs per unit of the model: A supplier, Idaho Manufacturing, has approached Otto and offered the fan at \$26. If Otto outsources, Otto has to give ldaho the fan design specifications with the offer. If Otto decides to buy from Idaho, the plant manager would be terminated. Rent costs of $2,000 are allocated to products on the basis of the floor spoce used for manufacturing the product. If the production is discontinued, the space currently used to manufacture it would become available. The company could then use the space for storage and save $4,000 currently paid for outside storage. All the allocated overhead costs would continue REQUIRED: 1) Advise if Otto should make or buy the fan based on quantitative approach? Show all the relevant items in the following format: ( 8 marks) Items 2) Suppose the annual $70,000 depreciation on equipment that was purchased for $700,000 and is just about at the end of its ten-year life. New replacement equipment will also cost $700,000 and is also expected to last ten years without any residual value. In this case, how would it change the total relevant manufacturing costs in your answer (1)? Should Otto make or buy? Explain. ( 4 marks) 3) List ANY TWO qualitative factors that Ono should consider in determining the make or buy decision. ( 3 marks) 4) Relevant costs concept is commonly used by managers in making business decisions. ( 5 marks) a) Explain "special orders" b) Outline the financial justifications required for managers in making accepting a special orders decisions