Furby Furniture (FF) sells a variety of home furniture products in a large metropolitan area. It manufactures couches at its own manufacturing facility. The unit cost to produce one couch is as follows:

	One Couch
Direct Materials	$400
Direct Labour	$180
Variable Overhead	$80
Fixed Overhead	$162
Total	$822

Fixed overhead consists of the following:

Factory Supervisor Salary $55,000

Depreciation on factory $42,000

Total $97,000

A local couch supplier has offered to provide FF all the couches it needs at a price of $800. FF would require 600 couches per year. Of the total fixed overhead assigned to the couches, $55,000 is direct fixed overhead and will no longer be required if the couches are provided by an outside supplier. There is no alternative use for the facilities currently used to manufacture the couches.

Required:

1. Should FF continue to make its own couches, or should FF purchase couches from the external supplier? State your assumptions. Show calculations to support your recommendation. (7 marks)

2. Suppose that the manufacturing facility is rented rather than owned. Thus, there is no depreciation expense but rather a rental fee of $30,000. Explain what effect this has on your analysis from part a). (3 marks)