Delta Company is trying to decide whether to continue manufacturing a part or to buy it form an outside supplier. The part, called CW, is a component of the companys finished product.

The following information was collected from the accounting records and production data for the year-ending December 31, 2020:

1) 7,000 units of CW are produced in the Machining Department.

2) Variable manufacturing costs applicable to the production of each CW unit are: Direct Materials $4.50, Direct Labour $4.30, Indirect Labour $0.50 and Utilities $0.40.

3) Fixed manufacturing costs applicable to the production of WISCO are:

Cost Item	Direct	Allocated
Amortization	$ 1,600	$ 900
Property Taxes	500	200
Insurance	900	600
Total:	$ 3,000	$ 1,700

All variable manufacturing costs and direct fixed costs will be eliminated if CW is purchased from an outside supplier. Allocated costs will have to be absorbed by other production departments.

4) The lowest quotation for 7,000 CW units from a supplier is $70,000.

5) If CW units are externally purchased, freight and inspection costs would be $0.30 per unit, and receiving costs totaling $750 per year would be incurred by the Machining Department.

a) Based on the above information, should Delta Company make or buy CW? What would be the change in Operating Income resulting from a buy decision? Show calculations for full marks. (10 points)

2. Would the decision be different if Delta Company has the opportunity to produce $4,000 of net income with the facilities currently being used to manufacture CW? Show calculations for full marks. (10 points)