London Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at $100\%$ capacity, and variable manufacturing overhead is charged to production at the rate of $40\%$ of direct labour cost. The direct materials and direct labour cost per unit to make the wheels are $$2$ and $$3\mathrm{.}5,$ respectively. Normal production is $200,000$ wheels per year.

A supplier offers to make the wheels at a price of $$8$ each. If the bicycle company accepts this offer, all variable manufacturing costs and one$-$third of the $$480,000$ fixed manufacturing overhead currently being charged to the wheels will be eliminated.

Instruction:

$($a$)$ Prepare an incremental analysis showing whether the company should make or buy

the wheels. You must make a conclusion on whether the company should buy the wheels from the outside supplier. $(1\mathrm{.}5$ point$)$

$($b$)$ Will your answer be different if the released productive capacity will generate additional income of $$300,000?$ Justify your answer. $(1$ point$)$