Luxor Corp produces particle boards. Each board is produced by the fabricating department and each board is made up of $80$ kilograms of particle material.

Annually $30,000$ particle boards are produced and sold. The fabricating department sells $50\%$ of the particle boards to the outside market for $$150$ each and the remaining $50\%$ to the assembly department. The assembly department uses the particle board to make office furniture. The fabricating department charges the assembly department $$44$ per particle board $($the variable cost of $1$ particle board$).$

Since the particle department has excess capacity, they sometimes accept one$-$time special orders. In these cases, retooling and dyes are not an incremental cost of producing one more particle board.

$\backslash$table$[[\backslash$table$[[$Variable costs per particle board; one$],[$particle board is $80$ kilograms$]],],$

Direct materials,$$15\mathrm{.}00$

Retooling cost$-$ $$9$

Dyes$-$ $$12$

Direct manufacturing labour $-$ $$5$

variable overhead $(25\%$ of direct

manufacturing labour$)-$ $$3$

Total variable cost $-$ $$44\mathrm{.}00$

fixed costs $-$ $$13\mathrm{.}00($

lease of machinery $-*2$

machines are leased for a total of $

$390000$ per year$)$

$**$Each machine produces $15,000$

particle boards$)$

The manager of the fabricating

department is evaluating purchasing

particle materials from an outside

supplier for $$0\mathrm{.}50$ per kilogram. If

farticle materials are outsourced,

then the company will only need to

lease $1$ machine and will get able to

get out of their lease contract $($less

a onetime penaity$).$ The outside

supplier will be able to take on the

capacity of $1$ machine and

guarantee $1,200,000$ particle

materials $($this will be enough

particie material for $15,000$ particle

boards$)$

Required:$-$

Calculate the cost savings of outsourcing $1,200,000$ kilograms of particle materials.

Prepare pro forma income statements that reports all kilograms of particle materials manufactured internally and with $1,200,000$ kilograms produced externally. Reconcile the change in operating income.