Exercise #1. Peters Pictures Peters Pictures Corp (PPC) has been manufacturing the frames for the pictures it sells. PPC is currently operating at 100% of capacity. Variable manufacturing overhead is charged to production at the rate of 50% of direct labor costs. The direct material cost per frame is $4 and direct labor cost to produce each frame $6. Normal production is 50,000 frames per year. Another company in the same business offers to make the frames for PPC at a price of $13.50 per unit. If PPC accepts the offer, all variable manufacturing cost will be eliminated. However, $50,000 of fixed costs currently being charged to the production of frames will now have to be absorbed by other parts of the business. Required: (a) Prepare an incremental analysis for the decision to make or buy the frames. (b) What other matters should PPC consider? (c) Should PPC accept the offer? Now assume the by giving up the production of frames, PPC can now expand its business into selling posters, which will generate an additional income of $40,000. Required: Would this change your view on whether the offer should be accepted