For many years Abdul Monem Company Ltd. has purchased the battery that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the battery. The chief engineer has recommended against this move, however, pointing out that the cost to produce the battery would be greater than the current $7.40 per unit purchase price: Particulars Per Unit Total Direct Material $ 3.10 Direct Labor 2.70 Supervision 1.50 $ 60,000 Depreciation 1.00 $ 40,000 Manufacturing Overhead 0.60 Rent 0.30 $ 12,000 Total Production Cost $ 9.20 A supervisor would have to be hired to oversee the production of the battery. However, the company must purchase an additional machinery costing $50,000 to produce the battery in addition to above costs. The rent charge above is based on space utilized in the plant. The total rent on the plant is $80,000 per period. Depreciation is due to obsolescence rather than wear and tear. One fourth of the manufacturing overhead cost is traceable to battery production and the rest is general manufacturing cost and is common in nature. Required: a. Prepare computations showing how much profits will increase or decrease because of making the battery. Assume that the target production level is 35,000-unit battery per period. b. If the company purchase the battery from outside supplier, it can rent its freed capacity to a third party and can earn $10,000 per month. In that situation, should the company produce the battery internally or buy it from external supplier? (Show necessary calculation to support your answer.