Engine Company (KEC) manufactures part TE456 used in several of its engine models. 4 Monthly production costs for 5,000 units are as follows: 5 6 Direct materials $90,000 7 Direct labour 45,000 8 Variable overhead costs 55,000 9 Fixed overhead costs 100,000 10 Total costs $290,000 11 Unit cost $58.00 12 13 KEC has the option of purchasing the part from an outside supplier at $50 per unit. 14 It is estimated that 20% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier 15 It has also been determined that some space freed up in the manufacturing area could be rented out to outsiders for storage at an annual fee of $30,000. 16 17 Required: 18 1. Qualitative factors aside, at the 5,000 budgeted level of production, what should KEC do-make the part itself or buy it from the supplier? 19 What is the impact on the company's net income? (Show your detailed analysis and decision). (8 marks) 20