Katherine's bakery sells cupcakes and other desserts through its retail store. The company has always made all of its ingredients from scratch but has recently been approached by a supplier that specializes in icing. Katherine believes that the supplier's icing is of equal quality to her own and believes their offer of $3.00 per liter may enable her to save money. Katherine is evaluating her own cost of producing icing: Per Liter Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead traceable* Fixed manufacturing overhead - allocated Total $1.00 0.50 0.25 1.00 1.75 $4.50 5,000 liters per year $5,000 2,500 1,250 5,000 8,750 $22,500 *40% relates to cleaning and maintenance of the icing equipment and 60% relates to depreciation of icing equipment (with no resale value) Examining the report, Katherine says, "Their icing is just as good, and it would save me $1.50 per liter, that's over $7,500 for the year. I think I'm going to take the deal. Required a. Assuming there is no other use for the icing equipment or the space it uses in the kitchen, what is the net dollar advantage or disadvantage of accepting the supplier's offer? b. If the offer is accepted, Katherine's Cupcakes could use the space that had been previously used for making icing as a bacon-frying space. Katherine believes that a new bacon line of cupcakes would produce margins of $5,000 per year. Should Katherine's Cupcakes accept the supplier's offer