MacKenzie Inc. manufactures air conditioners. It produces 20,000 units of a component that goes into its most popular air conditioner. The cost per unit of the component is as follows: Direct materials $ 5.45 Direct labour 3.50 Variable overhead 4.00 Fixed overhead 10.50 Total cost per part $ 23.45 An outside supplier has offered to sell MacKenizie Inc. all of the 20,000 component units it would need. The purchase price of the component parts would be $18.00 per unit. MacKenzie has determined that 25% of the fixed overhead would be avoided if they purchased the component from an outside supplier. If the company purchases the component from the supplier, then it would be able to sell the machinery used to manufacture the component for $40,000.

Required: 1. Prepare calculations to determine the total net dollar advantage or disadvantage of the supplier's offer? (4 marks)

2. Conclude on whether MacKenzie Inc. should accept the offer, or continue to make the component part themselves. (1 mark)