M7-7 (Algo) Analyzing Keep-or-Drop Decision [LO 7-2, 7-5] Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $48,000 as follows: Eliminating the Drafty product line would eliminate $86,000 of direct fixed costs. The $58,000 of common fixed costs would be redistributed to Blowing Sand's remaining product lines. Required: Will Blowing Sand's net operating income increase or decrease if the Drafty model is eliminated? By how much? M7.8 (Static) Analyzing Make-or-Buy decision [LO 7-2, 7.4] Blowing Sand Company also has the Blast fan model, It is the company's top-selling model with sales of 30,000 units per year. This model has a dual fan as well as a thermostat component that causes the fan to cycle on and off depending on the room temperature. Biowing Sand has always manufactured the thermostat component but is considering buying the part from a supplier. It costs Blowing Sand $5 to make each thermostat ($2.50 variable and $2.50 fixed). Flurry Company has offered to sell the component to Blowing Sand for \$4. Blowing Sand's decision to purchase the part from Flurry would eliminate all variable costs but none of the fixed costs. Blowing Sand has no other possible uses for the area currently dedicated to the thermostat production. Required: 1. Calculate the effect on Blowing Sand's annual total costs if the thermostat is purchased from Flurry Company. 2. Should Blowing Sand continue to make the thermostat or purchase the part from Flurry Company