Falco Inc. manufactures a moderately priced set of lawn furniture (a table and four chairs) that it sells for $225. The company currently manufactures and sells 6,000 sets per year. The manufacturing costs include $85 for direct materials and $45 for direct labor per set. The overhead charge per set is $35 which consists entirely of fixed costs.

Falco is considering a special purchase offer from a large retail firm, which has offered to to buy 600 sets per year for three years at a price of $150 per set. High Value has the available plant capacity to produce the order and expects no other orders of profitable alternative uses of the plant capacity.

Required:

1. What is the total relevant cost per unit to produce the units requested by the retail firm?
2. What is the estimated net effect on annual operating income if Falco accepts the special sales order?
3. Discuss relevant non-financial considerations relevant to the decision.

Part 2:

Assume that Falco Inc., as described in part 1 currently purchases the chair cushions for its lawn furniture from an outside vender for $15 per set. Falcos chief operations officer wants an analysis of the comparative costs of manufacturing these cushions to determine whether bringing the manufacturing in-house would save the company money. Additional information shows that if Falco were to manufacture the cushions, the direct materials cost would be $6 and the direct labor costs would be $4 per set. In addition, to produce the cushions, Falco would have to purchase the cutting and sewing equipment, which would add 10,000 to annual fixed costs.

Required:

1. What is the total relevant cost per year to purchase the chair cushions from the outside vendor?
2. What is the total relevant cost per year to produce the chair cushions internally?
3. What is the estimated net annual effect on operating income of producing the cushions internally rather than purchasing the cushions from the external supplier?
4. What strategic factors bear on the decision facing Falco.

I ONLY need PART 2 answered